The Cost of Waiting

When is the best time to begin planning for your retirement?

As soon as possible.

While it is important to start planning for your retirement no matter how far away it is, there is a significant benefit to retirement planning if you start early. By giving your contributions more time to grow, you can greatly enhance your earnings potential and add tremendous value to your portfolio.

Consider the table below as an example. Jane and John each have 40 years until retirement. Jane contributes $2000 each year to her IRA for the first 10 years, then nothing after that for 30 years. John, on the other hand, waits 10 years before contributing $2,000 annually to his IRA for the next 30 years. Both investors earn an 8% average annual compound rate of return.

Who do you suppose will have more money in his or her retirement account after 40 years? Would you be surprised to learn that Jane, who only contributed a total of $20,000 to her account, actually has more money in her IRA than John, who contributed a total of $60,000 to his account? In fact, Jane has nearly 40% more money in her retirement account than John, only because she began 10 years earlier.