**Savings: Now or Later?**

The Value of Compound Interest

by Ruth M. Naugle

Saving a little money now or start saving lots of money later? This question rings in most college graduates ears. Retirement seems a distant dream for many recent college graduates so many opt to wait to start saving money for retirement. Let's look at two options.

**Option #1**

Upon college graduation, age 22, Lorie
starts to invest $2,000 a year. She continues to invest $2,000 a
year until the age of 29, and then quits adding to the investment.
That is eight years with $2,000 invested each year totalling a $16,000
initial investment. The money is earning 12% annually.

**Option #2**
** ** Alyson enjoys her twentysomething
years, but she has a plan. Retirement is not until age 65 so she
has plenty of time. With her plan she will start investing at age
30 by putting $2,000 annually into an account earning 12% annually.
She will continue this over the next 36 years until retirement age of 65.
The sum of her initial investment is $72,000.

At age 65 who will have more money? Will the $56,000 less that Lorie invested be balanced by Lorie's decision to start investing early?

**Results**

**Option #1**

At age 65 Lorie will have $1,629,262.68.

Click to see spreadsheet

**Option #2**

At age 65 Alyson will have $1,085,197.38.

Click to see spreadsheet

That is $544,065.30 more for Lorie whose initial investment
is $56,000 less! Cheers to power of compound interest!

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