Comprehensive Financial Solutions, Inc.

440-343-4223

Retirement Read Time: 3 min

Saving Early & Letting Time Work For You

As a young investor, you have a powerful ally on your side: time. When you start investing in your twenties or thirties for retirement, you can put it to work for you.

The power of compounding. Many people underestimate it, so it is worth illustrating. Let's take a look using a hypothetical 5% rate of return.

How does it work? A simplified example goes like this: Let's take a look using a hypothetical 5% rate of return on a principal of $100. After a year, you earn 5% interest, or $5. Another year, another 5%, which adds $5.25 this time. In the third year, your 5% interest earned amounts to $5.51, bringing your balance to $115.76. The more money you deposit, the greater that 5% returns. Let’s look at another hypothetical example. If you were to start with a $1,000 principal in an account that earns 5% interest per year, and contribute $1,000 a year to the account, you would end up with a total of $7,078.20 after five years. That’s a total of $1,078.20 earned in compound interest from $6,000 in contributions. That compounding continues, even if you stop making deposits. All you really need to do is let that money stay put.1

The earlier you start, the greater the compounding potential. If you’re investing for retirement in your twenties, you may gain an advantage over someone who waits to invest until his or her thirties.

Even if you start early & then stop, you may be in a better position than those who begin later. What if you contribute $5,000 to a retirement account yearly starting at age 25 and then stop at age 35 – with no new money going into the account for the next 30 years. That is hardly ideal. Yet, should it happen, you still might come out ahead of someone who begins saving for retirement later.

1. This is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment or combination of investments.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Share |
 

Related Content

Infographic: Inclusivity for the LGBTQ workforce

Infographic: Inclusivity for the LGBTQ workforce

LGBTQ workers acknowledge progress on the equal rights in employment and workplace benefits. However, there is still a long way to go for organizations to become fully inclusive and empathetic.

Social Security: The 64,000 Dollar Question

Social Security: The 64,000 Dollar Question

One of the most common questions people ask about Social Security is when they should start taking benefits.

Do You Owe The AMT?

Do You Owe The AMT?

If you want to avoid potential surprises at tax time, it may make sense to know where you stand when it comes to the AMT.

 

Have A Question About This Topic?







Thank you! Oops!

The 12 Steps to Living Confidently: Retire With Confidence

There are good ways to retire and bad ways to retire. Retire the right way by better understanding Social Security.

When to Self-Insure

Choosing to bear the financial burden of an adverse event is called self-insuring. Do you know what that entails?

Immediate vs. Deferred Annuities

Looking forward to retirement? It's critical to understand the difference between immediate and deferred annuities.

View all articles

Federal Income Tax

Use this calculator to estimate your income tax liability along with average and marginal tax rates.

Potential Income from an IRA

Estimate your monthly and annual income from various IRA types.

What Is My Risk Tolerance?

This questionnaire will help determine your tolerance for investment risk.

View all calculators

Long-Term-Care Protection Strategies

The chances of needing long-term care, its cost, and strategies for covering that cost.

Protecting Those Who Matter Most

The importance of life insurance, how it works, and how much coverage you need.

Managing Your Lifestyle

Using smart management to get more of what you want and free up assets to invest.

View all presentations

The Other Sure Thing

Though we don’t like to think about it, all of us will make an exit sometime. Are you prepared?

Encore Careers: Push Your Boundaries

Ready for retirement? Find out why many are considering encore careers and push your boundaries into something more, here.

Video: The Independence of Financial and Emotional

Greater financial and emotional confidence brings greater independence. Isn’t that what it’s all about?

View all videos