$378,000 versus $132,000

A quote from MONEY CRASHERS ‘Should You Save for Retirement at a Young Age?’ at http://www.moneycrashers.com/should-you-save-for-retirement-at-a-young-age/    “If you started contributing $100 a month to your retirement account at the age of 25, and you were going to retire at the age of 60, then your account would reach $379,000.  If you started saving for retirement at the age of 35 with the same contribution, then you would have just $132,000.  The point is obvious.  If you start saving NOW, compound interest becomes your best friend.  This is not even factoring in matching contributions that a company may make.”

For my over 25 friends, no to worry-----starting late can work. You have to be more aggressive.  More on that in a few days, but the rest of this story will bless your children, of the next generation. So read on. 

Many years ago I was riding in a car with three friends who worked for the same employer.  We were driving several hundred miles to a conference and had time to talk about a little bit of everything.  We covered most fun topics and laughed hard.  Finally, the youngest guy in the group got bold and asked how our 401K’s were doing in a volatile investment market.  Other than himslef the rest of us were within 5 - 10 years of retiring.  Silence…He had hit upon a subject that was not really open for discussion as we hemmed and hawed without really answering.     

We then learned his motive for asking.  He wanted to do some bragging, and perhaps rightfully so, about his wisdom to start saving early and aggressively.  Once he retired he would be 35+ years working and his account would be well over $1,000,000. The subject was dropped as we went into contemplative silence about the future. 

My mind went into curiosity mode as I wondered if I could "catch-up", not that we males are competive or anything of the sort.  Later I called this friend and quizzed him about his savings plan and how he invested.  He had a higher tolerance for risk than I.  But I learned some good lessons from him. Foremost; start saving early and as aggressively as possible and leave it alone till you retire.

Studies show that children usually develop the habit of saving money if they are taught how while young.  Hopefully you were fortunate enough to be taught this essential skill.  If not, then gut-it-out and start putting money away today.  Set up your accounts to have money contributed automatically to a savings account, so you don’t even “see” it, and before long you won’t miss it.  Even if it’s only $25.00 or $50.00 per pay-check, get started. 

Most investment experts suggest we save 10% of what we earn. They make the claim that if we do this early enough and through-out our working life it will turn us into millionaires.  Stretch that initial contribution to the 10% level as soon as you can.  Doing it early in life benefits the bottom line much more than starting late, but no matter your age, maximize savings now.  

If you work for a company that matches savings funds in an investment account, such as a 401K, you can build wealth quickly making 50%-66% annually on your newly contributed money, in addition to regular interest returns.  One of the things necessary for success is leaving the money alone until you retire.  Don’t borrow against it, nor take early distributions. 

If you are saving for an emergency fund or for a down payment on a home, do it in a separate account.  Let your ‘nest-egg’ work for you earning interest through-out your working life.  In our case, after building to a level that kicked in full matching funds from my employer, we put our 401K savings on automatic annual 1% increase.  We will hopefully ‘retire’ from my first career in about a year and this savings account will be a huge blessing for the next 20-25 years.