The power of compound interest is AMAZING. You can set yourself up to be a millionaire with so little when you are young. Every year that passes makes it that much harder to retire with freedom.
The problem, as they say, is that youth is wasted on the young. It’s the rare teenager who is thinking about retirement. So that’s why as parents we need to do their thinking for them. When they get their first job, take a few moments and show them the power of compound interest. Show them the power that even $20 a week at 8% interest will have if they start young.
$80 per month ($18.50 per week) saved at 8% interest from age 15 to 65 would equal $574,407.
Oh, you want to be a millionaire? No problem.
$150 per month ($34 per week) saved at 8% interest from age 15 to 65 would equal $1,077,014.
If they wait until age 25 to start saving that same $150 per month at 8% will come to $468,271. Waiting those 10 years cost them over half a million dollars! Crazy right? To hit the million dollar mark starting at age 25 they will have to save $310 per month.
If they wait another 10 years and get started saving at age 35 that $310 investment at 8% will amount to $439,460. Now they will have to save $710 a month to become a millionaire at age 65.
At age 45 it will take $1,700 per month to hit the million dollar mark.
You can easily see that the longer you wait the harder it is to retire in style. It’s our responsibility to help our teens get started as soon as they get a job.
I have a write up about both traditional IRAs and Roth IRAs if you want to brush up on the differences between the two. Vanguard and T. Rowe Price are both great places to get started. Get your kids set up with an account and encourage them to start funding it. If you don’t feel confident doing this on your own think about how they feel. You are a grown up and this is complicated stuff. To a teenager it’s overwhelming. Don’t you wish your parents had helped you set up a retirement account when you got your first job? There are lots of people who are out there willing to help. Just call one of the companies I mentioned and ask them for help. They will have no problem walking you and your child through the necessary steps to a financially secure retirement.
If you have had teenagers already what tips do you have to get them interested in saving for retirement?