Tag Archives: compound interest

Saving for Retirement in College?

You must be thinking to yourself, is this guy crazy? Why on earth should you save for retirement when you haven’t even started a career yet? The answer to that question is the miracle of compound interest. Compound interest is where you not only earn interest on your original investment, but you also earn interest on your interest. For example, if you put $1,000 into an account earning 5%, at the end of year one you will have $1,050. As long as you let the $1,050 in the account, at the end of year two you will have $1,102.25. In year two, you earned $50 on your original investment plus an additional $2.25 on the interest you received from year one. You may be thinking that this seems very minor, and for the first few years it is. However, as time goes on, interest keeps adding up and compounding. Let’s look at a more complex example to see more drastic numbers. If you start saving just $100 a month at the age of 18 and continue doing that until you are 65, you will have $621,238 assuming a modest 8% return. Over those 47 years, you would have invested only $56,400 of your own money and the rest was the result of compounding interest. However, the longer you wait to start investing, the less effective compound interest will be.

Canon Rebel XS 10.1MP Digital SLR Camera with EF-S 18-55mm f/3.5-5.6 IS Lens (Black)