10 Retirement Pitfalls: Waiting

June 11th, 2007  |  Published in General

The power of compounding means that every year you wait, you don’t lose one year’s interest… you actually lose on the tail end of the compounding equation. Let’s say you have a maximum compounding interest lifespan of thirty years, starting when you’re twenty five. If you wait until you’re 26, you don’t lose interest from the first year… you lose it from the 30th year because you now only have 29 years to earn compounding interest.

Let’s say you start with $100 earning 10%. The first year, you earn $10. If you let that grow for twenty nine years, on the 30th year that 10% is actually worth $160, not $10. Take that difference and extrapolate it to a retirement balance of several hundred thousand and it’s BIG money. Don’t wait.

(Math check please: In year 29, your $100, growing for 29 years at 10%, is worth approximately $1,586.31. 10% of that is $158, or about $160.)

Source: Yahoo Finance


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