How much will you have saved at 67?
Due to the COVID-19/Corona crisis I’m working from home the last couple of weeks. Here in The Netherlands we have to work from home as much as possible and practice social distancing. Now that I’m working from home and I don’t have to commute, I have some extra time. And I use this extra time reading and gathering knowledge.
I like being home so much, being with my loved ones. So, this only makes me work harder to reach Financial Independence (FI) faster. I still need a lot of extra passive income to keep my present lifestyle.
Last week I saw a YouTube movie where they were talking about retirement and how much you need. Retirement is not a popular subject for most people. Most of the people think it is still far away. And, in my opinion, this is one of the biggest mistake people make about retirement. The most important thing – the key – about retirement savings is actually time. The experts on in the movie recommend that you start saving as early as you can. I would like to tighten this advice even further; You not only have to start saving as early as you can, but you also have to invest those savings!
That’s because, the more time your money has to work for you, the more time it has to grow. Then you are really using the 8th wonder of the world: Compound interest. This means that the interest/dividend earned also earns interest/dividend on itself (It is important to reinvest your interest/dividend every time). In other words: Compound interest makes your money grow at a faster rate than simple interest, because in addition to earning returns on your own money (principal and your donation every year/month) you invest, you also earn returns on those returns. For more information about Compound Interest, just take a look at part 3 of my Teaching my kids series: Compound Interest.
Let’s see some numbers
Of course, the total amount of money that you will have depends strongly on your annual investment return. But enough said, just take a look at the numbers below. Here you see how much you will have with various average annual investment return.
In the table you see how much money you’ll accumulate over time if you invest $250 a month starting at different ages and different annual investment returns.
Annual Investment return: 4%
25: You’ll accumulate $326,294 by age 67
30: You’ll accumulate $253,661 by age 67
40: You’ll accumulate $145,454 by age 67
50: You’ll accumulate $ 72,873 by age 67
Annual Investment return: 6%
25: You’ll accumulate $567,540 by age 67
30: You’ll accumulate $407,827 by age 67
40: You’ll accumulate $201,636 by age 67
50: You’ll accumulate $ 88,307 by age 67
Annual Investment return: 8%
25: You’ll accumulate $1,030,123 by age 67
30: You’ll accumulate $ 679,100 by age 67
40: You’ll accumulate $ 285,949 by age 67
50: You’ll accumulate $ 107,949 by age 67
In these figures you can see what a difference a little extra time can make. So, it is important that you invest consistently and start early. And do not let yourself be distracted from your plan by all kinds of economic events. Just Stick to your plan.
The key to your financial freedom is investing when you are young. The key isn’t so much the amount, the key is Time. The sooner you invest your money, the more you’ll benefit from compound interest!
So, wait no longer, start investing today! And if you don’t know where to start or you don’t want to do your research on individual companies, just make it yourself easy. Just like many experts, including Warren Buffett, recommend, start investing in low-cost index funds (ETF’s), which allow you to own a small piece of many different companies.
No matter how you choose to invest, the most important step is to open an account and start contributing to it consistently to take full advantage of compound interest. The earlier you start, the better off you’ll be.