Starting Early to Save for Retirement Is Important | American Funds

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Starting Early to Save for Retirement Is Important

Compound interest and time are a retirement saver’s best friends.

 

When it comes to retirement planning, it’s never too early to start saving. The more your clients invest and the earlier they start, the more time their retirement savings will have potential to grow.

Time Matters

  • The key engines that drive the unique opportunity for savings growth within a retirement plan are tax-deferral (assuming your client is considering enrolling in a tax-deferred, employer-sponsored retirement plan or a deductible IRA) and compound interest.
  • The money you’ll invest is tax-deferred, which means taxes are not payable until you withdraw the money from your account.
  • And thanks to compound interest, the money you would have otherwise paid toward income tax remains in your account to earn more money. For example, if you only contribute even a modest amount over time, you may be surprised at how much it could grow.
  • Just $50 a month could generate as much as $75,000 over 30 years.

Growth Potential of a Regular Contribution

Monthly Contribution

Annual Contribution

5 Years

10 Years

20 Years

30 Years

$50

$600

$3,698

$9,208

$29,647

$75,015

100

1,200

7,397

18,417

59,295

150,030

150

1,800

11,095

27,625

88,942

225,044

Assumes an 8% annual return, compounded monthly.1

The High Cost of Waiting

  • Waiting to start your long-term savings program can have a major impact on your retirement saving outcome.
  • Time and the potential for compound earnings matter. For example, here’s a realistic scenario that could make a significant difference in your outcome.1 
    Assume:
    • You earn $30,000 a year, receive 4% annual raises and plan to retire in 30 years.
    • You save 4% of your salary a year and earn an 8% annual return.
  • If you start investing today, you could have more than $220,000 by the time you retire.
  • If you wait five years before starting, you’d have $164,878 (assuming the same retirement date, salary, raises, savings rate and return).
  • Waiting five years could cost you $56,066.

This material is intended for use by financial professionals or in conjunction with the advice of a financial professional.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

1

Hypothetical results are for illustrative purposes only and in no way represent the actual results of a specific investment.

Content contained herein is not intended to serve as impartial investment or fiduciary advice. The content has been developed by Capital Group, which receives fees for managing, distributing and/or servicing its investments.