Importance of Saving for Retirement
Beware of the costs of financial procrastination.
Retirement usually doesn’t start until you’re in your 60s, but there is a good reason to start saving much sooner. The earlier you contribute to your nest egg, the more time your portfolio will have to grow in value.
The image below illustrates the ending wealth values and effects of compounding on two investment portfolios.
Consider two hypothetical investors who begin investing $3,000 at an average annual rate of return of 5%.
Investor A invests $3,000 for a 30-year period, which results in an ending wealth value of $199,317. On the other hand, investor B invests $3,000 for a 20-year period, which results in an ending wealth value of $99,198. Investor A invested an additional $30,000 compared to Investor B. However, a large difference in the ending wealth value can be attributed to the compounding effect of the $30,000 for the additional 10 years.
In other words, your dollars saved now will be worth a lot more than your dollars saved in retirement.
Source: This is for illustrative purposes only and not indicative of any investment. The image represents a hypothetical rate of return of 5%. The values represented do not account for inflation or taxes. Past performance is not a guarantee of future results. The opinions herein are those of Morningstar, Inc. and should not be viewed as providing investment advice. Please consult with your financial professional regarding such services.
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