Young adult investing pays

By Erica Stark, Licensed Financial Advisor, Tax Specialist, Founder of TAPP Financial

Not many recent college graduates prioritize saving for retirement. And that’s unfortunate, because saving sooner has a profound impact on how much you end up with when retirement comes. It allows your investments to grow over time by taking advantage of the power of compound interest.

This type of interest means your earnings generate returns on themselves over time. In other words, your money makes money. The longer your money has to compound, the greater the final amount you can accumulate by the time you retire.

Employer-sponsored retirement plans, such as 401(k)s, offer a valuable opportunity for early savers. They often include employer matching contributions, which is essentially free money added to your retirement savings. By contributing to a 401(k), you not only benefit from immediate tax advantages, but you also harness the power of compounding on a larger base.

Individual Retirement Accounts (IRAs) are another essential tool for retirement savings. Roth IRAs and traditional IRAs each offer distinct tax advantages. Roth IRAs are funded with after-tax dollars, meaning withdrawals in retirement are tax-free, while traditional IRAs allow for tax-deferred growth, with contributions often being tax-deductible.

The long-term impact of starting early is mind-blowing. Here’s an example: the person who starts investing $5,000 per year at age 25 and earns an average annual return of 7% will have more than $1.1 million by age 65.

The person who starts at age 35 would need to invest more than twice as much per year ($12,000) to reach the same amount by age 65, assuming the same rate of return.

If you’d like to take the guesswork out of planning for your future, feel free to give me a call.

TAPP Financial is located at 7003 Pearl Road, Suite 17B, in Middleburg Heights. Call 440-885-3133 or visit Tapp-Financial.com.