One of the biggest financial benefits available is one that anyone can access by opening a simple retirement account:
Retirement accounts like 401 (k) s and Roth IRAs aren’t just savings accounts – they’re actively invested and therefore have the potential to make the most of this benefit.
As Business Insider’s Sam Ro explains, “Compound interest occurs when the interest that accumulates on a sum of money in turn accumulates. “
So why is this so important?
The charts below will show you the incredible impact compound interest has on your savings and why starting to save in your 20s is one of the best things you can do.
1. Compound interest is incredibly powerful.
The chart below from JP Morgan shows how a saver (Susan) who only invests 10 years at the start of his career, ends up with more wealth than another saver (Bill), who saves 30 years later in his career. life.
By starting early, Susan was able to take better advantage of compound interest.
Chris, the third profiled saver, is ideal: he has contributed regularly throughout his career.
2. When you start saving outweighs how much you save.
This graphic by Andy Kiersz of Business Insider also highlights the impact of compound interest and the importance of starting early. Saving Emily, represented by the blue line, starts saving exactly the same amount as Dave (the red line), but starts 10 years earlier. Ultimately, she contributes around 33% more than Dave during her career, but ends up with almost twice as much wealth as him.
3. It can even make you a millionaire.
Compound interest can take you quite far. In fact, Business Insider has calculated – based on your current age and a 6% rate of return – how much you need to save per month to reach $ 1 million by age 65. You can also see calculations based on different rates of return. .