Nevertheless, Nate continued to invest $4,000 a year for another 10 years until he turned 65, when his account value reached $545,230. But guess what? Shirley's account at age 65 was worth more than $806,303.
You can see for yourself how starting early puts oomph behind your retirement fund using
Bankrate's compound interest calculator.
This tale serves to show how time can work to the advantage of young investors. But it's not a guide to follow precisely. In the first place, Shirley wouldn't stop investing at age 35. She's too smart for that.
A better strategy would be to invest a percentage of your income regularly in a tax-advantaged retirement account, if one is offered at your workplace, particularly if your employer offers a matching contribution. For example, if your employer offers a 50 percent match of up to 5 percent of your salary, you'd be passing up an instant 50 percent return if you didn't contribute at least 5 percent of your money to the plan.
At a minimum, take full advantage of the company match. But if you can manage it, contribute 10 percent or more of your income.
If your employer offers an automatic enrollment plan and you don't opt out, the plan will determine how much to take out of your paycheck and which investment to put it in. Of course, your employer will have to let you know all those details in advance. Take a look at them. If it's not enough, opt to have a higher percentage deducted from your paycheck. Whatever you do, don't opt out.
If your employer doesn't offer a plan at all, an IRA serves as a decent backup plan. Keep in mind, too, that your money isn't necessarily tied up for decades. You can withdraw up to $10,000 to use for a home purchase from a
Roth IRA in certain cases without paying a penalty.
Advice to heed and ignore
A lot of folks, both young and old, are not sure how to juggle their finances. It's not hard to understand why. They're often hit with conflicting advice even from financial experts.
For instance, The Wall Street Journal published a story recently on the subject of financial priorities in which a vice president of financial planning at The Schwab Center for Investment Research said, "Don't even bother saving for retirement or saving for college if you haven't paid credit card debt." In the same article, a financial adviser for T. Rowe Price advises paying off debt while saving for retirement and an emergency fund.