Let's get right to it: You can end up with nearly $1 million more for retirement if you start saving at age 22 than 30.
You probably have lots of questions, like "What are your assumptions?" and "Um, do I need to be a rich AF 22-year-old saving a bazillion dollars a year for that to be true?" and "I'm 30, why are you making me sad?"
So before we dive into the math, let's reiterate:
You will be much, much better off later if you start stowing away cash — even little bits of it — early. Better off than you realize.
And MillenniOlds need not despair: You'll still earn $1 million more if you start saving at 30 than at 40.
One key caveat: Your million-dollar retirement kitty is not just going to appear. You'll need to regularly save and you'll need to get a good rate of return on your investments, which assumes a bit of luck — which you can't quite force.
The point: Start saving ASAP, because that's something you can control.
Now, here's how the numbers break down.
The magic of compounding returns
Imagine getting a penny that then doubles in value every day for a month.
How much would you have at the end?
Like... a million dollars?
You'd have about $10.7 million, or more than 10 times $1 million.
It’s called compounding and it is the sunshine and water that will really make your money grow.
Now, let's be real.
You're not going to get double growth — aka a rate of return of 100% — in your 401(k). If you are lucky, you will get something closer to the historical average for stocks: Adjusted for inflation, that is right around 7%.
The historical average for the S&P 500 is technically closer to 10%, but there are a lot of assumptions made to get to that number, and some say the real number is even lower: between 4% and 6%. So be conservative in your expectations.
Yet returns are still returns, so pursue them.
As you add new money to your savings, you amplify growth, receiving increasingly larger interest payments on the increasingly larger amount in the account — and your money will snowball.
Where your million bucks comes from
A quick back-of-the envelope calculation: You're 22, make an average of $50,000 a year over your work life, and sock away about 15% of your income (i.e., $7,500 a year or $625 a month).
You'll end up with $3.8 million by the time you're 70.
If you do the same thing starting at age 30?
You'll end up with $2.2 million, or $1.6 million less.
But 15% of your annual paycheck is a big chunk of change. Many people, particularly when they are starting out, only aspire to that kind of savings rate.
Then again, your pay will — hopefully! — grow over your work life, so even if you start by saving less than the ideal, you may be able to contribute a higher percentage later.
So you'll probably need to have a few more variables in the calculation to get an even clearer picture of your situation.
Looking at Bankrate's retirement calculator, you can better gauge what you need to do.
Using that calculator, if you're 22, make $50,000 a year, save a more manageable 10% of your income each year, and receive a pay increase of about 2% each year?
Then you'll end up with $2.2 million by the time you're 70.
Starting at age 30 with the same conditions, you'll find yourself with about $1.2 million, or $1 million less than if you'd started saving eight years earlier.
Even looking at a person who earns less, starting at 22 making $30,000 and getting a 2% pay raise, compared to a person who is 30 and makes $30,000, the 22-year-old will come out $580,000 ahead by the time they are 70.
So start saving now.
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Correction: Jan. 22, 2018
A previous version of this story misstated a calculation. If a 30-year-old made an average of $50,000 a year over their work life and saved about 15% of their income each year, they’d end up with $2.2 million by age 70. The calculation has been updated.