Updated: Aug 25, 2021
Everyone wants to retire comfortably, but how many actually can?
Many of us worked ourselves to the age of 67 only to find out that we couldn't save enough to retire, or even enough to pay off the 30 years mortgage. Most of us worked hard our entire life to make our boss really really rich, but really leave almost nothing for ourselves.
I know people who has reached retirement age, but still works 6 days a week. Not because they wanted to, just simply because they can't stop. Once they stopped working, they would be sleeping on the street.
Is this the kind of future you are foreseeing yourself?
If you still have a couple of years ahead of you before you retire, it is not too late to fix it!
When it comes to saving for retirement, it is always better to start early.
Why? you ask? because of one simple equation:
Time x (Savings + Growth) = Wealth
Because the fact that time will multiply your results, the earlier you start, the bigger time multiplier you have.
If you are confused, let's look at the chart below:
(let's assume, you can save a 100k at the age of 27, and your wealth grow at 10% annually)
Just 20 years later, your money is now 6.72 times more than the original saving. Isn't it wonderful?
Einstein calls it the 8th wonder of the world, Compound interest.
When you recover from the shock and awe, I'll elaborate.
Basically, it is the magic of interest(growth) reinvested.
If you observe the year of 2022, my annual interest is $11,000 more because my reinvesting.
In the year of 2023, also because of my reinvestment of interest, I now make $22,100 more. So on and so forth.
So, are you telling me I can just keep my money in the bank and let it compound, and I can be rich 20 years later? No banks would give a 10% interest, is this a joke?
Not quite. While I admit that no bank is willing to give a 10% interest rate in savings account, but there is a way...
Invest in the stock market!
Wait, is this one of those invest in the stock market and get rich quick scheme? Count me out!
No, 20 years is not a way of getting rich QUICK. Beside that, I'm not talking about stocks, I am talking about indexes.
"The Standard & Poor 500 stock composite index" which represent 500 of the greatest publicly traded company in the united states. It was a list of companies created by Standard & Poor Ratings company, representing the best of the American economy.
The S&P 500 is diversify enough that your investment within it, is safe, and it's concentrate enough that it makes an average gain of about 10-15% annually.
It is still a stock right? what if the economy is in recession?
Sure, the SP500 will decline in a recession, but it also grow exponentially in a bull market.
When you look at the recessions in the time line of the SP500, it is nothing more than a small drop of water in the vastness of the ocean.
The S&P 500, after years of crises, still making new highs year after year. Invest in the index, and you are almost guaranteed to make a 10% extra income every year.
If 10% is too little for you, let's look at it at an additional 20 more years!
If you start early, and have 40 years to compound your savings, This is the amount you have after 40 years.