July 17, 2014
WHICH IS WHY THE SOCIAL SAFETY NET NEEDS TO BE DEFINED CONTRIBUTION...FROM BIRTH:
$1 Saved in your 20′s Equals $10 Saved in your 50′s! (G.E. Miller on July 16, 2014, 20SomethingFinance)
To hammer home the point further, take this example from Burton Malkiel, the author of A Random Walk Down Wall Street, as he highlights the following example of compound interest in action:"William, starts saving $4,000 a year when he is 20 and stops after 20 years, after having saved $80,000. His brother, James, starts saving $4,000 at 40, and does so for 25 years, for a total of $100,000 saved.They earn 6% on their savings.At age 65, William will have $850,136 in his account, while James will have only $219,242. Despite having saved less, William's nest egg will be almost four times greater because of compounding."And that's at just a 6% return. An extra 2 percentage point increase would more than double William's account.This scenario is reason #1 for why you should save early and often.
It's why the Third Way is so cheap in the long run.Posted by Orrin Judd at July 17, 2014 3:52 PM