When’s the best time to invest for retirement? Now.

Should you start saving for retirement? Unless you are on one of those richest-people-in-the-world lists - then the answer is, most likely, yes.

Growing a tree

From paying the rent or mortgage, credit card bills, student loans, daily living expenses - there are a lot of things competing for your money’s attention! The idea of saving for retirement can easily be pushed to the backburner for all of those other - completely understandable! - reasons. But we’re here to say - hold the phone. Even a little bit into a 401(k) can make a huge difference for your retirement.

Rock and roll

When a rock rolls down a hill, it goes faster and faster on its way down. It has something to do with momentum and physics – we’re not scientists here, we’re investment professionals. But the same concept applies to your 401(k) - not because of physics, but because of compounding interest.

Compounding interest means that not only are your original dollars growing based on potential stock market gains, but that newly earned money also grows whenever the stock market goes up!

bar-chart-compound-earnings

Assumptions: $100 monthly contributions, $5,000 initial contribution, and annual compounding. Annual investment return is assumed to be 6% each year. The investment performance is not attributable to any actual Betterment portfolio nor does it reflect any specific Betterment performance. As such, it is not net of any management fees. The balance projections are based on an initial deposit equal to the monthly deposit selected. Monthly recurring deposits, equal to the monthly deposit amount selected, are assumed to be made at the beginning of the month and interest is paid and investing returns are reflected in balance at the end of the month. All investing returns and interest paid are assumed to be immediately reinvested. Hypothetical examples are for illustrative purposes only, and market conditions can and will impact performance.

Give compounding time to shine

If the magic of compounding interest isn’t enough to get you going right away, there is one other chart that should do the job.

If someone starts saving 6% of their paycheck at age 25, they are expected to end up with more money at age 65 than someone who contributes 10% starting at age 40. And here’s the real kicker - the person who’s doing 10% starting at age 40 will put in more of their own dollars, and is still expected to end up with less by the time they reach age 65. How is that possible? The 6% contributions had more time to grow – more time to roll down that hill gathering speed – or in this case – money.

Starting sooner than later really pays off

bar-chart-age-comparison

Balances were estimated assuming a starting salary of $50,000 with 3% annual increases and an annual investment return of 6%. Balances were calculated net of a 0.25% management fee. Assumption for starting at age 25: 6% of annual salary contributions. Assumption for starting at age 40: 10% of annual salary contributions.

Not illustrative of actual client performance, which may vary. Investing involves risk. The investment performance is not attributable to any actual Betterment portfolio nor does it reflect any specific Betterment performance. Hypothetical examples are for illustrative purposes only, and market conditions can and will impact performance.

If you already have an account, log in today to increase your contribution rate.

Haven’t started saving in your Betterment 401(k) yet? Check your email for an access link from Betterment, or get in touch:

Send us an email: support@betterment.com
Give us a call: (718) 400-6898, Monday through Friday, 9:00am-6:00pm ET