You probably already know that one of the keys to successful financial planning is to “start early.”
There’s a good reason for that. If you start saving in your 20s or 30s, and let your money compound over time, you don’t need to save that much. However, if you delay until you are in your 40s or 50s, you’ll need to save much more to end up with the same amount of money.
Here’s a pretty convincing illustration we like to share with our younger clients to motivate them to start the savings habit as early as possible.
As shown in the table below, if you want to end up with $500,000 by the time you retire at age 65, you only need to save $189 per month if you start saving at age 25. Wait until age 35, and the amount you need to save each month jumps to $407. Delay until age 45, and your monthly target balloons to $954. Putting it off until age 55? Hate to break the news, but now it will cost you $2,872 per month.
Tip: To get your savings working for you as soon as possible, make sure you max your retirement plan at work and contribute to your 2011 IRA before the April 17 deadline!
The table above illustrates how much money an individual will need to save on a monthly basis to accumulate $500,000 by retirement at age 65, assuming a 7% annual rate of return. Taxes, fees and inflation are not considered in the calculations.