Yes, You Should Invest for Retirement Now

Here's why: time is the saver's best friend.

Even Starting Small When Saving For Retirement Makes a Huge Difference

It's the age-old challenge based on basic behavioral science: We humans aren't great at looking into the future and envisioning ourselves, our needs, or our dreams. But the truth is, the best thing we can do for our long-term future is take some time to visualize it. Now.

Countries around the world are facing shortfalls in state-sponsored retirement plans; very few citizens can expect a comfortable old age from their governments. Stashing away even a little bit of money now can go a long way later.

Whether you contribute to a workplace retirement plan like a 401(k) or an individual retirement account (IRA), getting an early start can make a huge difference in the size of your retirement nest egg. Keep in mind that you could live a long time after you stop working.

The Magical Multiplying Power of Compound Growth

Investing even a small amount of money regularly can add up, thanks to the power of compound growth. In a nutshell, compounding means that your earnings produce earnings of their own.

The chart below brings compound growth to life, comparing two investors. At age 22, Investor 1 begins contributing $250 to her retirement account each month. If she keeps that up for 40 years, she’ll put away $120,000. Not too shabby, but not exactly enough to retire in comfort.

But add in 7 percent annual growth—the average return for the S&P 500 adjusted for inflation—and suddenly Investor 1 now has $640,000 socked away. Thank you, compound growth.

Now meet Investor 2. He waits 20 years to start investing, but tries to catch up by contributing double—$500/month. Even with compounding, Investor 2 only reaches $263,000 in 20 years, just over half of what Investor 1 has earned. That's the power of compound growth. That's why so many people encourage you to start saving for retirement now because it really does make such a massive difference.

How Do I Actually Save For Retirement?