Saving Young is Awesome

I just opened a Roth IRA in troweprice and they sent me a magazine about investing. they showed a chart showing how compound interest works. Starting early really works wonders.

Go to http://www.moneychimp.com/calculator/compound_interest_calculator.htm

Under current principal put in what you are starting with. (I put $0)
Under annual addition you could put in any number you are putting into an account with your automatic savings plan.
Under years to grow it tells you how long your investment will grow if you dont touch this money.
Under interest rate you could put different numbers depending on what you are investing in.
Under compound interest time I put 3, but this seems pretty random.

I just started my Roth IRA and am maxing it out.
Annual addition = $5000
Years to grow = 35 (I want to retire when I am 62)
Interest Rate= I put a realistic number of 9%. (Getting 9% is key and my future posts will explain my philosophy on how to invest for the long term)
Compound interest = 3

Can you guess how much money I will have in my Roth for retirement if I keep this up?

$1,217,669.

Rediculous.

At that amount, I can reasonably take out $73,000 a year (6% of amount) and that money will never go away. And it will grow TAX FREE! This doesnt include the new tax law that will let you put in more than $5,000 a year (It will be adjusted for inflation). I think if I max it out with inflation it should be over 2 million when I retire.


The whole point of this? say I start doing this at 37 instead of 27. How much money would I have?

$468,016

Enough said