The earlier you start saving for retirement, the better. That’s a good principle to keep in mind–and a good message to pass along to your children when they begin their working careers.
Investment professionals have learned the "rule of 72": divide your investment return into 72 to see how long it will take for your money to double. If you earn 9 percent a year, which is a reasonable long-term goal for a well-managed portfolio, your investment will double every 8 years because 72 divided by 9 equals 8.
Say young Ashley Smith earns $35,000 a year and saves 10 percent: $3,500. If she starts at age 25 and earns 9 percent on her investments, her $3,500 will grow to $7,000 at age 33. It will be $14,000 at 41, and so on, so she’ll have about $56,000 at age 57, if she wants to retire then, or some $112,000 if she waits until age 65.
Remember, that’s from one year’s investment. If she starts early in her career and keeps investing as her earnings increase, her nest egg can grow to $1 million, $2 million, or more.
What’s more, Ashley doesn’t have to take chances. She can invest primarily into high-quality stocks and bonds. By just meeting the long-term averages in her investing, she can look forward to a comfortable retirement.
