AllFinancialMatters

A personal finance blog dedicated discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance.

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Thursday, February 24, 2005

Why it is Important to Start Saving When You're Young

I am a huge advocate of kids starting to save and invest when they are teenagers. Why? Because they have lots and lots of time on their side. Think about it, a teenager who starts saving at age 16, has approximately 50 years before they turn 65. Even if they have dreams of retiring early at age 55, that's still nearly 40 years to let their money grow.

If a 16 year-old could save and invest $1,000 per year for 3 years and then just let it grow until age 65, the account would be worth over $320,000 at age 65. And, that's assuming that they never added another dime to it.

Let's take it a bit further. Say they save for 3 years and skip saving while they are in college and then they start saving once they are out of college and starting a career. We'll assume that they can save the maximum allowed to be put in an IRA, which will be $5,000 starting in 2008.

For all you number lovers, here's what they look like:
     Starting                             Ending
Age Balance Additions Total ROR Balance
16
$1,000 $1,000 10% $1,100
17 $1,100 $1,000 $2,100 10% $2,310
18 $2,310 $1,000 $3,310 10% $3,641
19 $3,641 College $3,641 10% $4,005
20 $4,005 College $4,005 10% $4,406
21 $4,406 College $4,406 10% $4,846
22 $4,846 College $4,846 10% $5,331
23 $5,331 $5,000 $10,331 10% $11,364
24 $11,364 $5,000 $16,364 10% $18,000
25 $18,000 $5,000 $23,000 10% $25,300
26 $25,300 $5,000 $30,300 10% $33,330
27 $33,330 $5,000 $38,330 10% $42,163
28 $42,163 $5,000 $47,163 10% $51,880
29 $51,880 $5,000 $56,880 10% $62,568
30 $62,568 $5,000 $67,568 10% $74,324
31 $74,324 $5,000 $79,324 10% $87,257
32 $87,257 $5,000 $92,257 10% $101,483
33 $101,483 $5,000 $106,483 10% $117,131
34 $117,131 $5,000 $122,131 10% $134,344
35 $134,344 $5,000 $139,344 10% $153,278
36 $153,278 $5,000 $158,278 10% $174,106
37 $174,106 $5,000 $179,106 10% $197,017
38 $197,017 $5,000 $202,017 10% $222,218
39 $222,218 $5,000 $227,218 10% $249,940
40 $249,940 $5,000 $254,940 10% $280,434
41 $280,434 $5,000 $285,434 10% $313,978
42 $313,978 $5,000 $318,978 10% $350,875
43 $350,875 $5,000 $355,875 10% $391,463
44 $391,463 $5,000 $396,463 10% $436,109
45 $436,109 $5,000 $441,109 10% $485,220
46 $485,220 $5,000 $490,220 10% $539,242
47 $539,242 $5,000 $544,242 10% $598,666
48 $598,666 $5,000 $603,666 10% $664,033
49 $664,033 $5,000 $669,033 10% $735,936
50 $735,936 $5,000 $740,936 10% $815,030
51 $815,030 $5,000 $820,030 10% $902,033
52 $902,033 $5,000 $907,033 10% $997,736
53 $997,736 $5,000 $1,002,736 10% $1,103,010
54 $1,103,010 $5,000 $1,108,010 10% $1,218,811
55 $1,218,811 $5,000 $1,223,811 10% $1,346,192
56 $1,346,192 $5,000 $1,351,192 10% $1,486,311
57 $1,486,311 $5,000 $1,491,311 10% $1,640,442
58 $1,640,442 $5,000 $1,645,442 10% $1,809,986
59 $1,809,986 $5,000 $1,814,986 10% $1,996,485
60 $1,996,485 $5,000 $2,001,485 10% $2,201,634
61 $2,201,634 $5,000 $2,206,634 10% $2,427,297
62 $2,427,297 $5,000 $2,432,297 10% $2,675,527
63 $2,675,527 $5,000 $2,680,527 10% $2,948,579
64 $2,948,579 $5,000 $2,953,579 10% $3,248,937
65 $3,248,937 $5,000 $3,253,937 10% $3,579,331

Even at age 55, they could have over $1.3 million.

The point of all this is that if possible, it pays to start saving at a young age. So, to all you parents out there: teach your children well.