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Michael Vidal, CFP®

AUG
31
How "Time" Creates More $$$ Than Actual Money

Here is a quick example of the value of saving for retirement early.....

Lori saves $2,500 a year from age 25 until age 34 (inclusive) and invests the money in an account earning eight percent annually. Lori stops investing at age 34, but does not withdraw the accumulation until age 65. Lori's accumulation at age 65 is $393,588 even though she only deposited $25,000.

In contrast, Peter saves $2,500 a year from age 35 until age 65 inclusively and invests in a similar account to Lori, earning eight percent annually. Even though Peter saved $52,500 more than Lori, he will have accumulated $85,223 less than Lori at age 65.

                            Lori         Peter

Total Invested

$25,000

$77,500

Balance at 65

$393,588

$308,365

Earnings Rate

8%

8%

This example shows how "time" helped grow Lori's account balance more than Peter's, even though Peter deposited more money.  Lori's extra ten years of letting balances and taxes defer, ultimately lead to higher balances.

"Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it." Albert Einstein

The lesson here is to start saving early, even if the amount you can save is small. 

Hope you all have a great year saving!

Michael Vidal, CFP®



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