by Tomas Cullin
You're young, you just landed a new job and you're going
to be getting a decent paycheck. You also have bills
and student loans to pay and there are also a few items
that you've always wanted so now you can finally afford
them.
Investing for your retirement may be the last thing
on your mind at the start of a new career. Especially
being so young. Take some advice from those with a little
more experience: Start investing early in your career.
Start from day one and you will never miss that money
you're setting aside. If your company has available
a 401-K or a TSP program, jump on the bandwagon immediately.
If you don't have these programs at your disposal, you
can still start an IRA and the concepts stated here
are applicable as well. Even if it's only a few dollars
a week. They add up to millions by the time retirement
age rolls around.
It really does make a difference when you start contributing.
It is important to invest in your retirement account
early in your career for two reasons. First, if you're
fortunate to receive matching contributions, you don't
want to miss out on those added contributions that are
a significant part of your retirement benefit. Second,
the longer contributions stay in your account, the more
you stand to gain. Your money makes money in the form
of earnings, and those earnings in turn make money,
and so on. This is what is known as the "miracle of
compounding." As money grows in your account over time,
the proportion resulting from earnings will become larger
compared to the proportion resulting from contributions.
And the best part is you don't have to pay taxes on
the earnings until you with draw them.
The size of your account balance is going to depend
on how much you (and your company if they match funds
up to a certain percentage) contribute to your account
and how your account grows as a result of earnings on
your investments. To get an idea of what your retirement
account could be in the future, look at the following
projections.
Assume that you are an employee eligible for organizational
contributions, that you are earning $28,000 each year,
and that you receive no future salary increases. You
choose to save 5 percent of basic pay each pay period;
therefore you receive total organizational contributions
of 5 percent. The growth projections below are for an
assumed annual rate of return of 7 percent on your investments.
After five years your account balance would be almost
$17,000; after ten years your balance would increase
to $40,000; and after contributing for twenty years,
your account would have a balance of $122,000. Clearly
your balance would continue to increase each year. If
you contributed for forty years, which is fathomable
if you start a job at 23 and want to retire at age 63,
your account balance would be $615,000. That's over
half a million dollars folks! Just from contributing
5% of your income from the day you start work! Not a
bad investment, is it?
Looking at the numbers, it's hard to imagine why someone
wouldn't start investing immediately!
