By Patricia Uceda, Spring 2015 Graduate Research Assistant
It may be tempting to feel as though you can put off retirement until you are more established in your career and are pulling in more money. However, most retirement plans need time to really allow your savings to grow, and if you start later in life you will not get the most out of your money.
Here’s an example to better illustrate this point for you: Let’s say that you put $1,000 at the beginning of each year into an IRA from age 20 through age 30 (11 years) and then never put in another dime. The account earns 7 percent annually. When you retire at age 65 you’ll have $168,515 in the account. A friend doesn’t start until age 30, but saves the same amount annually for 35 years straight. Despite putting in three times as much money ($35,000 vs. $11,000), your friend’s account grows to only $147,914.
The reason for this disparity is compound interest, which we will discuss in our next blog post.