Here’s a little tip that can add hundreds of thousands of dollars to your retirement nest egg: Start saving and investing as early as you can. Check out the table below:
Growing at 8% for | $7,500 invested annually | $15,000 invested annually |
|---|---|---|
5 years | $47,519 | $95,039 |
10 years | $117,341 | $234,682 |
15 years | $219,932 | $439,864 |
20 years | $370,672 | $741,344 |
25 years | $592,158 | $1,184,316 |
30 years | $917,594 | $1,835,188 |
35 years | $1,395,766 | $2,791,532 |
40 years | $2,098,358 | $4,196,716 |
Calculations by author.
A close look reveals what a difference just five years can make. For example, imagine planning to retire at age 65 and starting to save and invest for retirement at age 40 (25 years from retirement) or at age 45 (20 years from retirement). It’s just five years, but look at the table above. If you’re saving and investing $7,500 annually (that’s $625 per month), you’d end up with $370,672 after 20 years, but had you started five years earlier, you’d have $592,158 — a difference of $221,486.
If you were investing $15,000 annually (about $1,250 per month), the difference between doing so for 25 years instead of 20 years is even more eye-popping: $442,972.
Image source: Getty Images.
Where to invest?
The table above reflects average annual growth rates of 8%. Where can you get that? Well, there are no guarantees, but the S&P 500 has averaged annual returns close to 10% (ignoring inflation) over long periods, so for most people, a simple, low-fee index fund can be all that’s needed to build wealth powerfully over time — whether you average 6%, 8%, 10%, or 12% over your particular investing period. Here are a few good funds to consider:
- Vanguard S&P 500 ETF (VOO 0.66%)
- Vanguard Total Stock Market ETF (VTI 0.72%)
- Vanguard Total World Stock ETF (VT 0.93%)
So get investing soon, if you haven’t started already. And nudge the young adults in your life, too — they have the most time and the most to gain.
Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF and Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy.
