Save Early Kids

One of the most valuable decisions in retirement saving is when to start. Over the 50 years from 1976 through 2025, the S&P 500 delivered a compound annual return of about 11.82%, including reinvested dividends. Suppose a young worker had invested just $100 each month in an S&P 500 fund and earned that historical compound return until age 65. Starting at age 25 would produce about $922,000. Waiting until 30 reduces the ending balance to about $523,000, while waiting until 35 reduces it to about $295,000. Scraping together $100 when you are 25 is difficult, but if you can do it consistently, voila you will become a millionaire.

What makes the comparison striking is how little of the difference comes from the contributions themselves. The 25-year-old contributes only $6,000 more than someone starting at 30, yet finishes with roughly $399,000 more. Compared with starting at 35, the early saver contributes just $12,000 more but finishes with about $628,000 more. The reason is compound growth: dollars contributed early earn returns, those returns earn returns, and the process repeats for decades. Of course, future stock returns may be lower than the past 50 years, and actual returns are anything but smooth. But the lesson does not depend on an 11.82% return: the opportunity cost of waiting to save is not primarily the contributions you miss, it is the decades of compound returns those contributions could have earned.

You can use the SEC site to do various “what ifs.”