The following example demonstrates the power of compounding due to making early annual IRA contributions:
Twin brothers, Peter and Paul, start contributing to their IRA at age 25; each put $5,000 per year in their IRA; each earns 10% per year. The only difference is Peter makes his contribution at the beginning of each year, but Paul procrastinates and doesn’t make his contribution until the end of each year. How much more money will Peter have when they retire at age 67?
Peter will have over $140,000 more that Paul!
Each brothers put in principal of $210,000, both earned 10%., but Peter retires with 1.89 million, while Paul has 1.75 million. This demonstrates the power of compound interest.
Strategy: Start investing early in life and contribute to your IRA early in the year.
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| AAAMP Blog by Ken Faulkenberry | |
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Ken Faulkenberry earned an MBA from the University of Southern California (USC) Marshall School of Business with an emphasis in investments. Ken has 25 years of investment experience and is dedicated to helping people with self-directed investment management through the Arbor Investment Planner. His asset allocation strategies have an outstanding performance record. |
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