Quote:
Originally Posted by lewdog
Part of article from money magazine about investing and compounding interest benefits.
To demonstrate the importance of time and saving early and often, I figured we'd look at how much you'd need to save on an annual basis to become a millionaire by the time you hit 65 years old, the upper-end of the traditional retirement age range.
For our example I've made a few assumptions to keep the calculations as simple as possible.
Using Bankrate's investment calculator I've assumed $0 initial investment, a 7% rate of return, a contribution frequency of once a year, and a compound frequency of once-yearly. We're also assuming that all taxes will be deferred, so keep in mind that tax implications aren't reflected in the eventual $1 million.
With these criteria in mind, here's how much you'd have to save annually to reach $1 million by age 65.
Age 20: $3,500 annually
Age 25: $5,010 annually
Age 30: $7,234 annually
Age 35: $10,587 annually
Age 40: $15,811 annually
Age 45: $24,394 annually
Age 50: $39,795 annually
Age 55: $72,378 annually
Age 60: $173,891 annually
As you can see from the above, your investing leverage disappears quickly if you begin saving and investing for retirement five, or even 10, years after you initially planned. Unfortunately, the "I'll save later" attitude is commonplace in the United States.
http://time.com/money/4417002/save-a..._medium=social |
Unfortunately, far too many in their 20s and 30s don't recognize the need to start saving early. They put themselves in a position that makes it difficult to save by blowing their "disposable" (read "indispensable ") income on going out, tv's, cars they can't afford etc. Even those in their 40s and 50s are saving inadequately. It just seems so far away for them. But at least those who are older will have the luxury of relying on social security to burden the cost of retirement.
News flash for you 20 and 30 somethings. Social security won't be around when you retire. At least not in it's current form.
Millenials are so concerned with the concept of sustainability when it comes to the environment. I wish they would apply the same logic to government spending in the form of entitlement programs. The math just doesn't work. There will be nothing left.
Saving is conscious choice. It is a choice between having toys in the present vs living in poverty in retirement. And in the famous words of Geddy Lee of Rush, "If you choose not to decide, you still have made a choice."