It would be wonderful if your financial advisor, could hop into a time machine with you to see where you are in 10 or 20 years? When you return, you can figure out how to maximize your future to prepare for retirement.
Sadly, the space-time continuum has not been mastered by mortals and the trip, though it sounds like fun, is not going to happen.
The next best thing is for you and your registered retirement planner to sit down and figure out where you want to be financially and how to get you there.
One great advantage people in their thirties and forties have is time. When it comes to financial planning, time, and compound interest are two of the most powerful tools in your financial arsenal.
The Magic of Compound Interest
Compound interest is nothing more than interest earning interest. Putting just a few dollars away in the present can grow to many dollars in the future through the magic of compound interest.
The neat thing about compound interest is that anyone can get it. You do not have to be a ‘wizard of Wall Street,” to make your money grow. Almost any investment you make now will earn interest if you leave it alone.
Time is your best friend when it comes to compound interest. The longer your money hangs out and compounds, the faster it grows. If your money is earning an annual percentage rate of 6 percent, it doubles in around 12 years, but, if you leave it alone for 24 years, it will be worth four times more. Say you invest $5,000, in a dozen years it increases to $10,000 and in 24 years, it is worth $20,000.
Of course, when interest is posted to your savings, it has an impact on earnings. You want it to compound as often as possible. For instance, quarterly interest payments are better than annual interest payments. Whenever interest is paid to you, the interest you earned starts earning interest.
While compound interest appears almost mystical, reaping its benefits requires patience and sound investment strategies. In the United States, over one third of Americans have not saved anything for their retirement and will depend upon Social Security alone for their retirement years. Surprisingly, it is the youngest Americans who save the least.
| Age Group | Percentage without Retirement Savings |
| 65+ | 14 percent |
| 50 to 64 | 26 percent |
| 30 to 49 | 33 percent |
| 18 to 29 | 69 percent |
| Total Population | 36 percent |
| Data From USA Today | |
Talk to a financial advisor about your financial goals and how to reach them. Although it is never too late to begin saving, starting early makes saving easier thanks to the magic of compound interest.
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