IRA's The Friend of the Young
December 12, 2009
– Comments (12)
Unfortunately, many people reach the point in their lives when they are ready to retire, and find that the "Golden Years", they were expecting, are at best, "Copper Years".
They thought that by buying a house, having a "retirement plan" through their employeer, and of course Social Security, they would be able to live a comfortable life in their "Older Age".
While I didn't always follow her advice, my grandmother offered some that was very good. The one thing she emphasized above all, was to always save some for a rainy day.
So, in the hope that those who are still young might start thinking about this while they have the time left to take advantage of the "magic of compounding", I am going to show just how magical this compounding thing can be.
I am going to post some different examples of what you could expect to have at retirement, if you invest various amounts, earning various rates of interest, over a realistic working life of 45 years: starting at the age of 20.
These figures are based on using a Traditional IRA as the vehicle of investment. There are advantages and disadvantages to using a Traditional IRA as opposed to a Roth IRA, and of course, if you start later, or retire later, the numbers will change, but no matter what you use, or at what age you start, you are likely to have more at retirement than you otherwise would, and probably more than you would expect.
Starting age 20, retirement age 65.
$2,000 per year
3% = $191,000
4% = $251,741
5% = $335,370
6% = $451,016
$3,000 per year
3% = $286,504
4% = $377,612
5% = $503,055
6% = $676,524
$4,000 per year
3% = $382,006
4% = $503,482
5% = $670,741
6% = $902,032
$5,000 per year (The current maximum)
3% = $477,507
4% = $629,353
5% = $838,426
6% = $1,127.541
These contribution amounts are only about $160.00 to $400.00 a month, or $40.00 to $100.00 a week. The calculations are based on an annual contribution, so if you contribute more often, they will be even greater.
Think about what you spend your money on, and what you would have to give up. In most cases, not much.
Another piece of advice from my grandmother was "Always pay yourself first", and if you live within your means, there won't be many others you have to pay second.
Hope this generates enough interest that you will check out the numbers for your own age and contribution levels, it might be an "eye opener".
IMO, these interest rates are not particularly high, and are easily obtainable. I'm old enough to remember when 5% was pretty much a standard rate on a passbook savings.
Good luck with your investments, and plan for your retirement so that they may truly be "Golden Years".
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