CHART: The Tremendous Power of Compounding
They say, “the early bird catches the worm.” Who is they you ask? That answer is not particularly clear -probably some old guy. But why do they say that? The answer to that might have something to do with your retirement savings.
The nice people at JP Morgan Asset Management have created a chart that demonstrates the tremendous power of compound interest. They lay out the stories of three generic sounding people: Susan, Bill and Chris who all start their retirement savings at different ages. And the results are powerful enough to make any twenty-something shake in their birkenstocks.
- Susan invests $5,000 per year only from ages 25 to 35. That’s $50,000 over 10 years.
- Bill also invests $5,000 per year, but invests from ages 35 to 65. That’s a total of $150,000 over 30 years.
- And Chris also invests $5,000 per year, but he invests from ages 25 to 65. That’s a total of $200,000 over 40 years.
So who ended up with the most money when it came time for retirement?
As you might have expected, our friend Chris does. But he had to invest significantly more money over a much longer time than his peers. Interestingly, Susan who invested the least but invested earliest has more wealth than her compatriot Bill who started ten years later and invest for twenty more years than she did.
