You think you’ve got years and years (and years!) to deal with this (yawn!) retirement stuff, right? Wrong. If you want to make work optional one day, the time to get started is now.
Retirement is a long-term investing project. When you start, earnings come from whatever money you manage to invest — aka your principle. Seems pretty obvious, right?
What’s not so obvious is that pretty soon your earnings will start generating earnings, too. That’s called compound interest, and it’s powerful stuff especially if you give it time. Consider this:
Say you and a friend each put $5,500 towards retirement every year and that you each earn 7% interest all the while you’re invested. Ok?
Now, let’s say you started investing at age 20 and kept up with it until you turned 30. In the course of 10 years, math says you would have invested $55,000.
Just as you slack off, let’s say your friend kicks into gear and invests every year from age 30 to 65. In 35 years, your friend would have invested $192,500. Seems like you’re beat, right?
Wrong. Because 10 more years of compound interest means you’ll have $868,110 while your friend has just $813,525 — no matter that your principle was 3.5x smaller! Imagine if you kept on investing each year from age 20 to age 65?!
The more time you have to invest, the more likely you can retire on your terms. Make retirement investment a priority and take steps to get started.