That's what many older women chant these days. The reason: Like most women, they didn't start thinking about their retirement planning until they had suddenly reached their 30s or 40s and realized how much valuable time they had lost.
Yes, it's difficult to think about retirement when you're young. For one thing, it's hard to believe you'll ever be as old as 40, much less 59 or 65. For another, you have plenty of other financial pressures to contend with: paying down your student loans, managing your credit card debt, saving for a down payment on a car or just managing to cover the rent each month.
But while all that may be true, it's also true that if you start saving for retirement now, you have the best shot at attaining long-term control over your finances and ending up your life in comfort.
Watch the Money Grow
Just watch what happens if you open an individual retirement account now and start contributing to it each year. (If you need to learn more about how to work with IRAs check out, IRA:Traditional or Roth).The first year you open an IRA you'll invest $2,000, which is the maximum annual contribution. That $2,000 will be invested in mutual funds, stocks or bonds that will provide a return within the IRA account. By the end of the first year you'll have the original $2,000 investment, plus any income it has earned. Now you've got $2,000 earning interest plus interest earning interest. And on top of that you'll make another $2,000 contribution the second year. The entire sum will earn interest and so on.
By the time you hit retirement age (59 1/2 or later), all those contributions and interest will be worth much more than the original amounts you deposited, thanks to the power of compounding.
For example, if you start making annual $2,000 contributions at age 25, you'll have contributed $70,000 by the time you retire. But at a 10 percent rate of return, you should have $540,049 in your account at retirement age, according to a calculator in Wells Fargo's Website . The site calculates the after-tax value of IRA investments, so depending on whether you're investing in a Roth IRA (which requires you to contribute after-tax dollars but allows you to make tax-free withdrawals after retirement) or a tax-deductible IRA (which allows you to contribute pre-tax dollars but which requires you to pay tax upon withdrawal at retirement), the after-tax value of your retirement nest egg will be slightly different.
If you start investing in an IRA after age 25, your money will have less time to compound before retirement than if you'd started earlier, but that doesn't mean you should abandon your savings plan if you didn't start at 25.
Even if you start investing $2,000 a year at age 34, you'll still have more than $200,000 at retirement age. But note that the difference between starting at age 34 and starting a decade earlier is more than $300,000 at retirement. It pays to start as early as you can.
It also pays to get the highest rate of return you possibly can. While 10 percent is the historical average return from investments in the stock market, you cannot always guarantee that your IRA will pull in a steady 10 percent. But that also doesn't mean you should abandon ship. If you get an 8 percent rate of return on your IRA investments between ages 25 and 60, you'll have about $345,000 in your account, according to a calculator provided by the Vanguard Group.
Another strategy for increasing your retirement nest egg is to put off the age at which you retire. In the above example, earning an 8 percent rate of return, you'll have more than $518,000 if you retire at age 65 instead of 60, according to Vanguard's Website. That's because your money gets the greatest benefit from compounding at the end of the time it's in your account, because that's when there's the most money to build on. And no matter when you start, the compounding effect will mean your money will multiply into quite a tidy sum by the time you retire.
Keys to Retirement Success
- Start early: the younger you are when you begin contributing to your IRA, the longer your money will have to compound, making it worth even more when you retire.
- Contribute every year: Even if you're tempted, don't skip your IRA contribution. Give your money the best possible chance to grow by socking away a little bit every year.
- Resist the temptation to withdraw the money early: You'll have to pay a penalty of about 10 percent and your retirement nest egg will be that much smaller.
- Aim for a high rate of return: The more your money earns annually, the more you'll have at retirement.
- Leave the money in longer: Money gets the greatest effect from compounding in the later years, so the longer you can leave it in your account, the more you'll have when you withdraw it.
