• Skip to main content
  • Skip to header right navigation
  • Skip to site footer
Bautis Financial

Bautis Financial

Secure your Castle, Achieve your Dreams.

  • Schedule a Call
  • Podcasts
    • Agent of Wealth
    • Clear a Path
  • About
    • Our Approach
    • Our Team
    • Our Difference
  • Who We Work With
    • Individuals and Families
    • Small Business Owners
    • Retirees and Pre-Retirees
    • 401k Plan Sponsors
  • Insights
    • Blog
    • Business Valuation Advisor
    • College Planning Hub
    • Discover How
    • Learning Center
    • Risk Score
  • Client Access
    • Wealth Center
    • Orion

Time Is On Your Side

December 4, 2013 by Bautis Financial

Building up a big enough nest egg for retirement is a goal for most people.  The amount of savings you have available when you retire is a function of three things:
Time – When you start saving.  The earlier you start the better.
Investment Return – The amount of money your savings earn.  Usually this comes from interest, dividends, and capital gains.
Savings Amount – How much you save per month or year.
One could make the argument that Time is probably the biggest factor to how much money you have available for retirement. The main reason Time has such a positive impact on your savings is because of the concept of compound interest.
Compounding is the process of generating earnings on an asset’s reinvested earnings. To work, it requires two things: the re-investment of earnings and time. The more time you give your investments, the more you are able to accelerate the income potential of your original investment, which takes the pressure off of you.
To demonstrate, let’s look at an example:
If you invest $10,000 today at 7%, you will have $10,700 in one year ($10,000 x 1.07). Now let’s say that rather than withdraw the $700 gained from interest, you keep it in there for another year. If you continue to earn the same rate of 7%, your investment will grow to $11,449.00 ($10,700 x 1.07) by the end of the second year.
Because you reinvested that $700, it works together with the original investment, earning you $749, which is $49 more than the previous year. This little bit extra may seem like peanuts now, but let’s not forget that you didn’t have to lift a finger to earn that $49. More importantly, this $49 also has the capacity to earn interest. After the next year, your investment will be worth $12,250.43 ($11,449 x 1.07). This time you earned $801.43, which is $101.43 more interest than the first year. This increase in the amount made each year is compounding in action: interest earning interest on interest and so on. This will continue as long as you keep reinvesting and earning interest.
Let’s look at a couple of examples on how compounding affects retirement savings.  We will keep the return and savings constant in the three examples and show how starting to save at different ages impacts what you have available when you retire at 65.
I save $1,000 a month and earn a 7% return on my investments.
If I start saving when I’m 25 I will end up with $1,500,000 which I can convert into an income stream of $80,000 a year from age 65 to 90.
If I start when I’m 35, I will end up with $855,000 which I can convert into an income stream of $43,000 a year from age 65 to 90
If I wait 10 more years and don’t start saving until I am 45, I will end up $418,000 which could generate $21,000 in income a year.
For every 10 years that you wait after age 25 to start saving you are basically left with half of the amount of money when you retire.  When you are in your twenties and early thirties thinking about retirement is often not on the forefront of people’s mind, but it is the best time to start saving for it.

Category: Retirement Planning
Previous Post: « 65% Of People Still Use Excel As A Budgeting Tool
Next Post: 3 Financial Actions Everyone Should Take In The New Year »

Sidebar

Featured Articles

bautisfinancial risk number

Recent Posts

Why — and How — Are the Wealthiest So Wealthy?

Why — and How — Are the Wealthiest So Wealthy?

March 29, 2023 By Bautis Financial

Dog Walking Side Hustle

44% of Americans Report Having a Side Hustle Amid Inflation

March 28, 2023 By Bautis Financial

Stock Market Recap

Market Recap Week of 3/20/2023 Through 3/24/2023

March 27, 2023 By Bautis Financial

How to Teach Your Children to Invest Like a Honeybee With Henry Svec

Episode 148 – How to Teach Your Children to Invest Like a Honeybee With Henry Svec

March 24, 2023 By Bautis Financial

Fed Hikes Rates by a Quarter Point and Indicates Increases May Be Nearing an End

Fed Hikes Rates by a Quarter Point and Indicates Increases May Be Nearing an End

March 23, 2023 By Bautis Financial

Blog Categories

  • Budgeting/Saving (36)
  • Business (53)
  • Clear A Path Podcast (6)
  • Client Resources (4)
  • College Planning Learning Center (2)
  • College Planning Podcast Series (3)
  • Daily Flash Briefing (1)
  • Education (33)
  • Estate Planning (16)
  • Finance News (587)
  • Insurance (27)
  • Investments (248)
  • Learning Center (25)
  • Lifestyle (52)
  • Miscellaneous (50)
  • Personal Finance (160)
  • Politics (21)
  • Real Estate (48)
  • Retirement Planning (104)
  • Social Security and Medicare (28)
  • Taxes (49)
  • The Agent of Wealth Podcast (147)
  • Uncategorized (109)
  • Videos (154)
  • Wealth Management (72)

Subscribe to Our Insights

Sign up to receive valuable financial insight and updates straight to your inbox each week.

Social

Follow along on social media

Contact

Bautis Financial
7 North Mountain Ave
Montclair, NJ 07042
Get directions
862-205-5800
Contact

Navigation

  • Schedule a Call
  • Podcasts
    • Agent of Wealth
    • Clear a Path
  • About
    • Our Approach
    • Our Team
    • Our Difference
  • Who We Work With
    • Individuals and Families
    • Small Business Owners
    • Retirees and Pre-Retirees
    • 401k Plan Sponsors
  • Insights
    • Blog
    • Business Valuation Advisor
    • College Planning Hub
    • Discover How
    • Learning Center
    • Risk Score
  • Client Access
    • Wealth Center
    • Orion

Copyright © 2023 · Bautis Financial · All Rights Reserved · Powered by Mai Theme

Return to top