Retirement savings…Starting early is crucial, but catching up can help

Compound interest is a concept that dates as far back as the Babylonian empire. When it comes to your retirement savings, it’s a powerful force over time.

Using annual compound interest, your savings growth is based on your principal plus the interest it earns each year. Year after year, this exponential growth is one secret to building a healthy retirement next egg. The more years you save, the greater the impact—that’s why starting early is crucial to a successful retirement savings plan.

Adding to your principal at regular intervals can really get your savings moving. For illustrative purposes, if you saved $2,000 a year at 10 percent interest, after 10 years you’d have over $35,000. If you stick with it another 10 years, the growth jumps to $126,000. In another ten years you’d have saved $362,000. Finally, if you saved another 10 years — a total of 40 years (a typical career) — your grand total would be just shy of $1 million.

While a 10 percent return each year over 40 years may not be typical, it does show how disciplined saving and the power of compounding can take a relatively modest investment and grow it into retirement well-being.

If you were not able to start your supplemental savings plan early in your career, and are now playing catch up, be aware that if you are over 50, you can contribute an additional amount. In 2007, the annual limit for a 403(b) TSA or 457 plan is $15,500. But those 50 and over can contribute an additional $5,000 a year.

Your NEA Valuebuilder® Program representative can tell you more about the power of compounding and how to get your tax-deferred savings plan underway. If you are well into your career and have not already started a supplemental retirement savings account, it’s never too late. Contact your NEA Valuebuilder representative today or call 1-800-NEA-VALU.