Financial News: Behold, the magic of compounding

December 5, 2007

It's not too late to fully fund your 401(k), Roth, or other retirement accounts for 2007. If you're a procrastinator, a recent T. Rowe Price analysis drives home the importance of making those deferrals as early in your career as possible.

It's not too late to fully fund your 401(k), Roth, or other retirement accounts for 2007. If you're a procrastinator, a recent T. Rowe Price analysis drives home the importance of making those deferrals as early in your career as possible. They calculated the returns for a 22-year-old who saved $100 a month for 10 years, then saved nothing for the next 33 years, leading up to retirement at age 65. The account value at the end of 43 years, assuming an 8 percent annualized return, was over $250,000. Compare this to the investor who saves nothing from age 22 to 32, then $100 a month for the remaining 33 years to retirement. She ends up with $60,000 less at age 65, even though she put away over three times as much cash. So, even though you're probably past age 22, don't delay in funding your retirement. It's never too late, and it's obvious that sooner is better.