The Best $10 Spent in Your 20s Is on Retirement — How It Can Make You a Millionaire
Written by
Karen Doyle
Edited by
Amber Barkley
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It may seem premature to be thinking about retirement while you’re in your 20s, but there’s really no better time. By starting to save early, you can end up with a much larger nest egg than you’d have if you’d waited — even if you don’t start with much money. Saving as little as $10 a day, starting in your 20s, can yield well over $1 million by age 65.
Here’s how just $10 in your 20s can make you a millionaire in retirement.
Compound Earnings
The secret to building wealth by starting early is to capitalize on the magic of compounding. When you save money, you earn interest on that money. If you put your savings in a bank account, you’ll get a fixed rate of interest. If you invest in the stock market, your earnings will vary over time, but historically speaking, you’ll make more money over time.
When you leave your money and its earnings invested, you’re making money on your initial investment as well as the money you’ve earned on that money.
Here’s an example. Suppose you invest $1,000, and your investment earns 10% per year. After year one, you’ll have $1,100 — your initial $1,000 investment plus the $100 you earned. After year two, you’ll have $1,210, and after year three, you’ll have $1,331. You earn more each year, because you’re earning money on your earnings, as well as your original investment.
Consistent Contributions
When you save regularly, you not only build good habits, but you also build a healthy retirement account. And the earlier you start, the more money you’ll invest before you hand in that last resignation.
A worker who starts saving at age 20 can save for 45 years and retire at 65. Someone who doesn’t start saving until age 40 only has 25 years before they retire.
Save Early, Save Often
The secret sauce of retirement savings is the combination of these two things: compound interest and consistent contributions.
By saving $300 a month, or about $10 a day, the chart below shows what your account balance would be at age 65, assuming various starting ages and rates of return. For reference, the average annual return for the S&P 500 is about 10%, since its inception.
| Starting Age | 4% | 6% | 8% | 10% |
|---|---|---|---|---|
| 20 | Â $454,415 | Â $832,586 | Â $1,601,271 | Â $3,202,620 |
| 25 | Â $355,734 | Â $601,260 | Â $1,058,577 | Â $1,928,457 |
| 30 | Â $274,940 | Â $429,886 | Â $694,782 | Â $1,155,585 |
| 35 | Â $208,791 | Â $302,925 | Â $450,913 | Â $686,782 |
| 40 | Â $154,632 | Â $208,868 | Â $287,435 | Â $402,420 |
These calculations assume you will invest the same amount every year. If you really want to turbo charge your retirement savings, you can increase the amount you invest as your income increases. A good way to do this is to set aside a portion of each pay increase for your retirement savings. So, if you get a 4% raise, commit to adding 2% to your savings, and keep the other 2% as discretionary income.
Time really is on your side when it comes to saving for retirement. Starting in your 20s can mean a much bigger cushion when you stop working at 65.
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