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 at July 17, 2014 3:52 PM
  
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