Compounding Interest Made Easy

When should I start saving for retirement? Obviously the answer is as soon as possible. " Your parents probably told you that when you were younger, and their bosses may have even said that if you hooked up with a 401k account. So everyone was saying to start saving while you're young, but they went over the numbers with you at all? Compounding interest is the key here, but if we look at a very easy example, we see just how much influence it is done saving, and you are young.

Let's say you start late:
In 30 years, and put away $ 1,500 a year. You are about to retire at 65 or 35 years. Finally, let's assume an annual interest rate of 6.5%. Some retire at 65, you'll need: $ 186,052
Now suppose that you start early: You're 22 years old, fresh out of college. You are about to retire at the age of 65, or 43 years. Finally, let's assume an annual interest rate of 6.5%. Some retire at 65, you'll need: $ 323,030

By saving the same money, but from just eight years old, you will need to close additional $ 140,000! In fact, you probably start away even more than the older and more for you, and you may need to combine the 401k plan in order to save more money while you're younger, too!

So why does it work? That you put away $ 1500 a year ago rate of 6.5% annually. So one year it is $ 1,597. Now for the second year to make $ 1,597 6.5% interest and becomes $ 1,701th Another year, and its initial $ 1,500 is now $ 1811th This is just one of the party $ 1,500. Each year, compound interest has a huge impact.

It's like the old penny trick you learned in primary school the same - if I give you a penny today, but I will double the amount I have for you within the next 30 days, then the other day, I'll give you two cents in, day three before I give 4 cents, 8 cents on a four-day, etc. . Within 30 days I have to give you more than $ 5 million U.S. dollars. This is an example of compound interest, but the rate is 100%.

So bottom line is - before you start saving, the more money you'll need [to play] when you retire. It can be easily a couple hundred thousand dollars!