You’re never too young to start saving – especially for your retirement. Whenever it is that you decide to start, understand this: The longer you wait, the more it will cost. The cost will come in the form of either a smaller retirement income or larger savings requirements later in life. The graph shows the difference between Mary and Alan. Mary started investing at age 25, but Alan waited until he was 35.
Mary’s parents taught her the value of saving when she was young. Mary figured she might be able to retire early if she didn’t put it off. Alan is more of a free-spirit. He believes that things always have a way of “working out.” He is in no hurry to start investing and waits 10 years to start. They both opened a Roth IRA and invested $2,000 every year.
Forty years later, when they are about ready to retire, their investments both grew at an average rate of 8%. Mary invested $80,000 that has grown to almost $560,000. Alan has invested $60,000 and his account is worth about $245,000. Because she started earlier, Mary was able to invest more, and the investments had an extra decade to grow. She earned more than twice what Alan earned.
For Alan to have caught up to Mary, he would have had to invest about $4,600 per year for each of the 30 years for a total of $138,000. Instead, he fell short by over $300,000.