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Very few things baffled Albert Einstein. Amongst them include the infinite universe and human stupidity. The most powerful force of all in the universe, though, as he declared, was the concept of compound interest.
Let's assume that you have 2 options of funding your retirement. Option A is to save $5,000 per year from the age of 20 to 30 and want to withdraw from the account when you retire at 65. Option B is to save $5,000 per year from the age of 31 to 65 and want to withdraw from the account when you retire at 65.
A simple exercise using Excel yields the following table:
Total Account Balance at Age 65
|
Annual Return Rate
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From 20 to 30 Years Old
|
From 31 to 65 Years Old |
| 5.00% |
$ 391,824.28 |
$ 451,601.54 |
| 7.50% |
$ 1,018,588.74 |
$ 771,258.03 |
| 10.00% |
$ 2,603,854.76 |
$ 1,355,121.84 |
| 12.50% |
$ 6,548,987.83 |
$ 2,428,301.90 |
| 14.00%* |
$ 11,303,355.85 |
$ 3,467,863.51 |
| 15.00% |
$ 16,213,637.86 |
$ 4,405,850.78 |
| 17.50% |
$ 39,530,195.40 |
$ 8,048,562.55 |
* The Dow Jones Industrial Average gain from 1983 to 2006 was averaged to 14%.
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