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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