By Myra O’Dell
Saving for retirement as a young adult can be challenging. Many people find themselves paying off school debt, saving for a first home, or starting a family during this stage of life. Meanwhile, they are also in the process of starting a career and consequently earning entry level salaries. However, making the decision to save for retirement at an early age can really pay off over the long run due to the power of compounding. For example, check out the chart below:
This example assumes an annual $5,000 contribution made on Jan. 1 each year into a tax-deferred account (i.e. IRA, 401(k)) with a 7% annual rate of return. By initiating a savings plan at age 25, the account would be worth $844,435 ($1,641,122-$796,687) more at age 70 than it would have been if savings began at age 35. Furthermore, the saver would have only deposited $50,000 more into the account by starting at age 25.
I hope this compels you to begin saving for retirement if you haven’t already. It’s never too early to start saving.
*The example above is hypothetical. Results may vary.