Time and Money

Time never matters more than when saving for a long-term goal. Retirement is most people’s longest-term goal. Here’s why time matters.

Start Early

Try the compound interest calculator at the Security and Exchange Commission’s
www.investor.gov. Input $0 for a starting balance and a monthly contribution of $300 per month, which is $3,600 annually. Then type in a 6% interest rate compounded monthly and 40 years for how long you’ll contribute the same amount.

Over 40 years you will have contributed $144,000 in this hypothetical example, but your balance will have grown to $597,447. That’s more than four times your contributions, showing the power of time and compounding.

Lost Time

Now let’s say you believe you have plenty of time to save for retirement. After all, you have to pay off school loans and save up for a family and first home right now. So you decide to wait 20 years, but you’ll double contributions to $600 monthly for the next 20. Add up your contributions and you’ll have the same total as in the first example: $144,000.
The result, however, is not the same. In the second hypothetical example, your balance would more than double to $277,225. That’s still less than half of what you would have saved in the first example. Clearly, time is crucial when saving for a long-term goal.

Early is Better

Look at one final example. Contribute just $100 a month. That’s the cost of a good restaurant meal for two and a couple of designer cups of coffee. Input the same numbers used in the previous examples: 6%, $0 balance and 40 years.

Over 40 years, you would have contributed a total of $48,000. Despite contributing one-third of the total cited in the second example, you will have accumulated over $199,000.

Begin Today

Clearly, time can have an outsized impact on how much you accumulate in the long term. So if you don’t contribute to an IRA or 401(k) plan, consider starting today. As difficult as imagining your future might be, it can be financially rewarding when you use time to your advantage.