Einstein described compound interest as a “miracle” and nowhere is it more evident than when workers invest their savings for retirement. The chart below shows the growth of a retirement account from the age of 25 till retirement.
Let’s look at three employees; Susan, Bill and Chris. All want to save for retirement but approach it in different ways. Susan starts early and invests $5,000 annually between the ages of 25 and 35 for a total of $50,000 over that 10-year period. At age 65, she has more than $602,000 for retirement. Bill waits until he is 35 to start investing and then does so at the rate of $5,000 per year for 30 years. At age 65, he has $540,000 in savings after having invested $150,000, or three times the amount Susan invested. Chris starts early and sticks with it, investing $5,000 per year from 25 to 65 and amassing $1.14 million for retirement for his $200,000 investment.
The lesson is clear: when it comes to saving for long-term goals like retirement, the best approach is to start early and stick with it for the long haul.