Scenario 3: Investing & Saving Money Young

Saving money for an item you want is great but saving for your retirement when you are younger is even better! It is so hard to think about us retiring. I am 25 and I have many more years until I am officially able to retire. I have started contributing to my work retirement fund and I have a Roth IRA. I am also putting money away in a brokerage account for my retirement. Something amazing happens when you start investing early and that is that compound interest is on your side! We saw that compound interest for student loans and credit cards are a killer no one wants to pay $9,000 extra for their college! Investing is a difficult concept to understand, but I found the best way to start understanding is by dong. If you work, I would recommend opening a Roth IRA. This type of retirement account is pre-taxed income, so when you retire you will NEVER pay taxes on your growth! If you start early, you wont want to pay taxes on how much your accounts have grown.

Answer these questions:

Two people invest $2,000 a year, but at different parts of their life.

Person 1 starts at 19 and stops at 26 - so a total of 8 years only. Person 1 puts in $16,000.

Person 2 doesnt start until 27 but continues to put in $2,000 a year until he is 65 so for 39 years. Person 2 puts in $78,000.

• Do you think that Person 1 or Person 2 will have more money saved in their investment account at 65? Why or why not?
• What would happen if Person 1 kept investing $2,000 a year until he was 65? Use this link and plug in the information. Person 1 started at 19, will stop at 65. Has $0 starting off. Will put in $2,000 a month and the annual return is 12%.
• What happens if Person 1 started at age 20 and stopped at 65? How much is the difference by starting one year later? Use that same link above and same information (just change the current age).
• What are your reactions to this? Do you think you will try to start saving some money for your retirement now?
• What does this tell you about investing at a younger age?