Persuading an 18-year-old to save for retirement isn't easy, especially when immediate desires are plentiful. But it pays to save early, says Harry R. Tyler, a financial planner in West Chester, Pa. Your money will work for you better over a longer period, and that's the key to building wealth.
Consider this hypothetical situation: Sally is 18, Bill is 27 and Chris is 35. Each has the same financial goal: to accumulate $1 million by age 65.
Let's assume that each will earn 10 percent a year on investments. To keep it simple, suppose no taxes
will be deducted from their investment income.
To reach her goal of $1 million, Sally, at age 18, would have to contribute $2,000 a year for only eight years. At that point, she could stop making deposits and simply let her assets multiply for the next 47 years.
Bill, who started investing at age 27, would have to contribute $3,000 a year for fully 18 years to achieve the same results.
Chris, who didn't start investing until age 35, would need to contribute $6,000 a year for 30 years.
The message, Mr. Tyler said, is clear: If you want to build wealth, don't procrastinate.
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