"That way you can take full advantage of compound interest. Unfortunately, the longer you wait to get serious about saving and retirement, you begin to lose out on the power of compound interest. "Let's say you had $5,000 in a savings account that earns 5% in annual interest. In year one, you'd earn $250, giving you a new balance of $5,250. In year two, you would earn 5% or $262.50 on the larger balance of $5,250, giving you a new balance of $5,512.50.""
""Thanks to the magic of compound interest, the growth of your savings account balance would accelerate over time as you earn interest on increasingly larger balances. If you left the initial principal of $5,000 in the savings account for 30 years, earning a 5% annual interest rate the whole time and never adding another penny, you'd end up with a balance of $21,609.71.""
Begin saving for retirement as early as possible to take full advantage of compound interest; delaying reduces long-term growth. A $5,000 principal earning 5% annually would grow to $21,609.71 over 30 years without additional contributions. Determine expected retirement spending, including travel, major purchases, or supporting family, and estimate annual withdrawals accordingly. Analysts commonly recommend a 4% average withdrawal rate to help prevent running out of money in retirement, though individual situations vary. Use tax-advantaged accounts such as traditional IRAs and aim to maximize annual contribution limits to increase tax-deferred or tax-free growth.
Read at 24/7 Wall St.
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