Time is on Your Side

Chart of the Week for June 9-15, 2000

The earlier you start to save, the less it will cost you to become a millionaire. In other words, the sooner you begin to prepare for retirement, the less you will have to contribute out-of-pocket to reach your end goal.

The chart above assumes that four investors all want to retire at age 65 with a nest egg of $1 million dollars. Investor number one (far left in the chart above) starts saving when he is 25 years old, investor number two starts when he is 30, and so on. All four investors earn 10% annually.

Each group of bars above breaks down the ending account value of $1 million for our four investors. Did the money come from out-of-pocket savings (red bars)? Or earnings on savings and interest (blue bars)?

What’s interesting is that the investor who starts early has to save just over $2,000 per year, or a total of about $82,000, to reach $1 million by the time he’s 65 years old. That’s only 8% of his amassed wealth. On the other hand, the investor who postpones saving for retirement until he is 40 years old will have to save over $200,000. Because he has less time in which to save it (only 25 years versus 40), he needs to find more than $9,000 per year to sock away. So you see, time really is on your side.

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This illustration was compiled by information from outside sources. These companies are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing.

Investment information can change rapidly and the changes can be significant particularly in volatile markets. For this reason “as of”’ dates are provided for specific data where applicable. The information should not be considered current after the dates provided.

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The performance data quoted represents past performance. Past performance is no guarantee of future results. Investment returns and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240. Para asistencia en Español llame al 800-669-8216. Performance data current to the most recent quarter end is available by visiting www.icmarc.org.