The Benefits of Saving Early
Start small, save early, and let the power of compounding work for you.
Simply put, the earlier you begin saving, the better.
Regardless of how much money you make, or how far away retirement may seem, it’s never too soon to start saving in a retirement plan. Waiting even a few months, could mean less money when you retire because of compounding interest.
Compounding makes you money in two ways: on the money you contribute, as well as on the money it earns (rate of return). For example, if you invest $100 and it earns a 5% annual return, your principal will be $105. A year later, if the annual return is again 5%, you earn money on the $105, not the initial $100. Now you have $110.25. And as your principal grows, so do your gains, which compounds your returns.
The longer you save, the longer you’ll benefit from compounding returns. Another way to look at it, any amount you save has the power to grow your nest egg exponentially over time.
The below example assumes setting aside $125 per month into a pre-tax retirement account. This example is for illustrative purposes only and does not reflect the performance of any specific investment.
** This example assumes an annual income of $25,000 (without increases), 6% contribution, 8%–10% rate of return, and monthly compounding. This chart is for illustrative purposes only and is not intended to represent the performance of any specific investment. Actual returns will vary and principal value will fluctuate. Taxes are due when money is withdrawn.