It is important to understand just how much saving today can impact your wealth tomorrow. The power of compounding interest over a long time horizon can be a huge advantage to your retirement nest egg. Consider the following example:
Nick, age 25, has landed a communications position that he sees as a real career opportunity. He understands the importance of tax deferred saving for retirement and realizes he needs to begin. As a result, he decides to contribute $200 a month in his IRA plan. Although Nick will probably increase his contributions as his income increases, you can see from the chart below how much $200 a month is potentially able to generate over a long period of time.
Because Nick has time on his side, assuming an 6% annual return he could accumulate over $400,000 (A) by age 65 even if he never increases his contribution of $200 a month. To illustrate the importance of saving early, if Nick saves until age 45 and then stops, he still would have over $307,418 (B) at age 65. As you can see, the vast majority of his wealth is due to the compounding of his first twenty years of savings. Conversely, should Nick begin saving at age 45 until the age of 65, he would only have $92,870 (C).
Retirement isn’t a destination but an existence that consists of the rest of our lives. It is important that we have the right amount of financial resources to sustain us through that time. Saving as much as we can as early as we can will make all the difference! Talk to your Wealth Advisor about how contributing to an employer sponsored plan or IRA can help you pursue your goals.
Talk to your Wealth Advisor about how contributing to an Employer Sponsored plan or IRA can help you pursue your goals.
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