Plan Your Prosperity: The Only Retirement Guide You'll Ever Need, Starting Now--Whether You're 22, 52 or 82

Start Immediately. Now. Right Away.

This is (or should be) beyond obvious, but the sooner you start saving and investing, the more money you likely have down the road.

You’ve probably heard that endlessly, but my sense is many folks don’t get, in their bones, the power of compounding interest.

Here’s the magic demonstrated. If you’re 25 now and plan on retiring at 65 and do nothing but max out your IRA contribution each year ($5,000 as of 2012) and just match equities’ long-term annualized return of 10%, at age 65 you’d have $2.2 million. That’s without a 401(k) or any additional savings. And that’s assuming the IRS won’t increase the IRA contribution level ever again (which it probably will).

We go into this more in Chapter 7, but the more you save early, the more you juice the power of compounding interest. Save just an additional $2,000 a year, and you end up with $3 million. Max out your IRA and your 401(k), and you can end up with nearly $10 million at age 65. That means saving $22,000 a year—possibly partly or wholly pre-tax. It’s not a paltry amount for a 25-year-old just starting out, but it’s not a ridiculous amount. Particularly since the entire contribution for that 25-year-old is probably pre-tax, lowers the tax liability and did I mention the $10 million?

That’s serious money. And the odds equities get something like the historic long-term average annual return over the 40 years ahead are pretty good.

If you’re young and can’t save much now, start smaller, but commit ...