The Elite Eight is now the Final Four and what a March it's been. Some of the best games to watch are when a team is down and goes on a run to get back in it and make it a game again. Just this weekend Michigan State needed overtime to knock off Louisville and Kentucky had to come from behind to beat Notre Dame. Undoubtedly teams want to start off in the lead and maintain it. They want to score points early and often. It doesn't always work out that way.
In saving for retirement the same can be said. You should start off saving early and often. Did you know that more than one third of adults say they have not started saving for retirement yet? And it's not just young adults. More than one fourth of those ages 54-60 have yet to start saving.*
The earlier you start to save the easier it will be to build the amount you need. As the Rolling Stones song goes "Time is on my side". Beth and Jane are 24 years old and start working at the same company on the same day. Beth starts contributing to the employer's 401(k) after one year when she is eligible by making contributions of $1,000 per year. Jane waits another 10 years before participating in the 401(k). Beth stops investing after 15 years, while Jane continues to invest $1,000 a year until she retires at age 65.
Both contributed $1,000 a year and earned 8% per year. Beth invested a total of $15,000 over 15 years while Jane invested $31,000 over 31 years. Beth's balance at age 65 will be $216,891 and Jane's will be $133,214. That's the power of compounding. Einstein is said to have called it the 8th wonder of the world! That's a costly 10 year wait for Beth.
Think you can't afford to save? Make some lifestyle changes and sacrifices. It's hard to play catch up with your retirement savings. There is no overtime. When the retirement buzzer sounds you better be ready!
*National poll accompanying Bankrate's monthly Financial Security Index
This is a hypothetical example for illustrative purposes only and is not intended to represent any specific investment. This example does not consider any costs associated with investing. Investments involve risk and you many incur a profit or a loss. Seeking higher rates of return involves higher risks.