Here’s an example from Vanguard of how compound interest works: Earning 6% on a $10,000 investment will net you $600 in the first year the money is invested. But then you’re starting off the second year with $10,600, and the 6% return will get you $636. By the time the 20th year rolls around, your earnings will be $1,800, and you’ll have increased your balance by more than 200%.
“The sooner you start, the more your money is going to be working for you,” Sri Reddy, senior vice president of retirement and income solutions at Principal Financial Group, previously told Money. “You can make it up over time if you start later, however you’re going to have to save exponentially more to end up with the same kind of outcome.”
Retire with Money
Retire With Money brings the latest retirement news, insights, and advice to your inbox. Elizabeth O’Brien has covered retirement for more than 10 years.