This comparison shows the POWER of COMPOUND INTEREST in action
Individual "A" begins saving $3,000 per YEAR (ONLY 10% of an annual salary of $30,000) either after their 22nd
birthday at a job that does not require a college degree, or the person starts saving the $3,000 annually after they
finish college and begin working.
This person saves $3,000 per year for seven years, until they are 28.
This person STOPS saving (I do NOT recommend this, of course), because they get married, buy a house, etc.
This person does NOT save a dime for the next 34 years(!) and with an average annual return of 10% (easily
attained with stocks, bonds, mutual funds, with dividends re-invested), this person can end up with a nest egg of
$942,490 for retirement at age 62 (INFINITELY better than Social "Security"...)!
The $942,490 is attained with an OUT OF POCKET expense of ONLY $21,000!!!
The $3,000 per year that was previously saved could, after age 28, be used for other things, and the worker would
still end up with almost $1,000,000!
Now, let's see what happens to Individual "B".
This person gets a job either after high school or college and of course, PARTIES, dates non-stop, buys their
significant other (whose name they probably won't remember when they hit age 30) lots of drinks, dinners, trips, and
gifts and neglects to save ANYTHING until they hit the age of 29.
Now, this person may now be married and have children already, so even saving $3,000 a year may prove difficult,
but this person MUST save at least $3,000 per year in order to have enough saved for a decent retirement.
This person begins saving $3,000 per year from age 29 every year until they retire at age 62. A total of 34 years...
This means that the OUT OF POCKET expense for this person is $3,000 multiplied by 34 years = $102,000!
If you look at the image contained in the link below; you see that Individual "B", who paid in $102,000 out of their
pocket, earned $903,440 during the SAME time frame as Individual "A" earned $942,490...
The person whose out of pocket expense was only $21,000 EARNED $39,050 more than the person whose out of
pocket expense was a much larger sum of $102,000
When does $21,000 earn MORE than $102,000?
(In case the image is too small to read, you should be able to enlarge the image of the side-by-side comparison)
Return to LINKS Page