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.