Today, one of my direct subordinates (I’m a classic middle manager), who is a brand new entry level supervisor straight out of college, told me that she isn’t saving a dime for retirement yet. She plans on starting to save in about four years. She was told by her parents that she has plenty of time to start investing when she is older and that she should worry more about her job first. What horrible advice! Time is the best thing that young people have going for them with respect to investing for retirement. The time to invest is now!
Delaying Just Four Years. Let me show you some numbers and why you can’t afford to wait to invest for your retirement. If you started investing $5,000 a year in a Roth IRA when you graduated from college at the ripe old age of 22, you could expect to have $1.6 million in your nest egg when you reached retirement age of 65. (Assuming an 8% average annual return) If you wait just four years until you are 26 years old and not make any investments during those first four years of your career, you will only accumulate $1.2 million in your nest egg. I know what you are saying…$1.2 million is nothing to sneeze at and you are right. But, you will be missing out on earning $400,000!! If that is not enough money to make you want to run out and start investing, I don’t know what will.
Compounding Interest. You cannot beat the power of compounding interest. When the interest you earn on your savings earns interest itself that is compounding interest and a powerful tool in wealth accumulation. At 8% interest, your nest egg will double every nine years. That is a lot of doubling when you are young and have a lot of time on your hands before retirement.
Time Is Your Friend. Time is your best friend when you are young. A young person fresh out of college or high school has something that everyone wants to get back…time lost. The best time to start investing for retirement is now. If you have a part time job as a teenager during high school and can start investing, you will be a multimillionaire when you retire. Starting to invest when you are 16 can earn you an extra $1 million! Your nest egg for retirement (based on the scenario above) will be $2.6 million dollars at the age of 65 if you started when you are 16 years old.
Want some proof? Check out a blog post I wrote months ago on the same subject, Make Your Child a Multi-Millionaire Tax Free with a Roth IRA.
People think that they have plenty of time to begin investing for retirement, but the longer you wait the smaller amount of money you will have to live off of in your golden years.