For Mark Roberts’ Use:

The average person is generally aware that saving for retirement is important. What most people don’t know, however, is how soon they should begin planning or how much money they should set aside.

Many families face significant expenses on a daily basis, and it can seem like saving for retirement is unnecessary or even impossible. These people often feel they should wait until they’re more financially comfortable to make a retirement plan. However, putting off this important decision can make it much more difficult to save the amount needed for retirement later.

Those who begin saving for retirement early can reap far greater rewards. By saving even a small amount each month, and treating this savings as a necessary expense, many individuals can amass a sizable amount of money over the long run.

The following example can illustrate the enormous cost of waiting to save for retirement: Chad, an accountant, decides to begin saving for retirement right away. He sets aside 275 dollars each month for ten years, and then stops. His friend Lisa, a registered nurse, feels that she can wait until later to save for retirement. At the same time Chad stops saving, Lisa begins saving the same amount (275 dollars) each month. Both Chad and Lisa earn an 8 percent return on their equal investments of 33,000 dollars. However, at the end of 20 years, Chad has amassed 112,415*, while Lisa has saved only 50, 646* dollars.

The fact that Lisa has saved less than half of Chad’s amount clearly illustrates the importance of beginning retirement savings now. Not only do actual contributions earn interest, but that interest will compound as it is reinvested. Clearly, Lisa cost herself a huge sum of money by waiting to save for retirement.

For those who consider saving for retirement to be too costly at present time, taking advantage of employer-sponsored retirement plans by having funds taken directly out of their paychecks might be a good option. These individuals can begin saving with a very small amount each month, and gradually increase the amount as their salary grows each year. The most important thing to remember is that saving for retirement should begin now, rather than later, in order to take advantage of compounding interest over time.

*This is a hypothetical example which illustrates the effect of mathematical compounding. It does not represent actual performance of any specific investment. Rates of return vary over time, and investments offering higher rates of return involve higher risk. These amounts do not include taxes, inflation, and fees. Actual results will vary.