Start Investing Early in Your Career
You're young, you just landed a new job and you're going to be
getting a decent paycheck. You also have bills to pay and there
are also a few items that you've always wanted so now you can
finally afford them.
Investing for your retirement may be the last thing on your mind
at the start of a new career. Take some advice from those with a
little more experience: Start investing early in your career.
Start from day one and you will never miss that money you're
setting aside. If your company has available a 401-K or a TSP
program, jump on the band wagon immediately. If you don't have
these programs at your disposal, you can still start an IRA and
the concepts stated here are applicable as well.
It really does it make a difference when you start contributing.
It is important to invest in your retirement account early in
your career for two reasons. First, if you're fortunate to
receive matching contributions, you don't want to miss out on
those added contributions that are a significant part of your
retirement benefit. Second, the longer contributions stay in
your account, the more you stand to gain. Your money makes money
in the form of earnings, and those earnings in turn make money,
and so on. This is what is known as the "miracle of
compounding." As money grows in your account over time, the
proportion resulting from earnings will become larger compared
to the proportion resulting from contributions.
The size of your account balance is going to depend on how much
you (and your company if they match funds up to a certain
percentage) contribute to your account and how your account
grows as a result of earnings on your investments. To get an
idea of what your retirement account could be in the future,
look at the following projections.
Assume that you are an employee eligible for organizational
contributions, that you are earning $28,000 each year, and that
you receive no future salary increases. You choose to save 5
percent of basic pay each pay period; therefore you receive
total organizational contributions of 5 percent. The growth
projections below are for an assumed annual rate of return of 7
percent on your investments.
After five years your account balance would be almost $17,000;
after ten years your balance would increase to $40,000; and
after contributing for twenty years, your account would have a
balance of $122,000. Clearly your balance would continue to
increase each year. If you contributed for forty years, which is
fathomable if you start a job at 23 and want to retire at age
63, your account balance would be $615,000. That's over half a
million dollars folks! Just from contributing 5% of your income
from the day you start work!
Looking at the numbers, it's hard to imagine why someone
wouldn't start investing immediately!