By Austin Read
Have you ever wondered what waiting ten years to begin investing would do to your retirement portfolio? Let’s look at two examples: Jack and Jill. Jack, who is 20 years old, begins investing by putting an initial deposit of $2,500 into his account, and then sets up recurring contributions of $350 per month. Assuming Jack’s investments receive an average annual rate of return of 8%, and he invests this money for 40 years, his ending balance at the age of 60 could equal $1,142,9121. On the other hand, Jill, who is 30 years old, begins investing by putting an initial deposit of $2,500 into her account, and then sets up recurring contributions of $350 per month. Keeping the annual rate of return the same, by the time Jill turns 60, she could have $501,208.
With Jill waiting to start investing for retirement ten years later than Jack, she is left with almost half as much money. In fact, for Jill to reach close to the same amount of money as Jack has in retirement, and still start ten years later, she would have to double her monthly contributions to $700. What if she waited twenty years to start investing? Well, she can still reach that $1.1 million retirement goal, but now she will have to invest almost 5x as much each month for a total of $2,025. All this being said, it is never too late to start investing. As we can see, Jill still was able to reach her goals by increasing her monthly contributions. However, the main point of this article is to show that it is never too early to start investing. In fact, starting early is one of the easiest ways to set yourself up for financial freedom.
1Numbers compounded annually.