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Early start compounds the return
![]() Assets can include collectible items such as this 1955 Patek Philippe watch, which has appreciated considerably over the past 50 years. YOUR E-MAIL ALERTS
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Or, visit Popular Alerts for suggestions. (CNN) -- The miracle of compound interest, combined with an early start to saving, can help achieve greater financial comfort in retirement. Look at the following two examples: A person who saves $100 a month from age 25 will have a lump sum of about $114,000 at age 60, assuming an annual interest rate of 5 percent, compounded quarterly. Saving $200 a month would see the lump sum reach $227,000. Bump it up to $400 a month and the final total hits $455,000. But if that person delays any form of regular saving until the age of 45, the lump sum at age 60 will be only $27,000 on the $100-a-month plan. Doubling the savings rate to $200 a month will take it up to about $54,000. Even saving $400 a month will lift it only to about $107,000. Of the differential of almost $350,000 between the two $400-a-month outcomes, it is the extra 20 years of compound interest that makes the big difference. The extra savings contribution accounts for $96,000, while the interest adds $252,000. For a quick calculator of compound interest, one site is www.moneychimp.com So savings time is critical. But is an early start going to be enough? That depends on a host of variables to do with life expectancy, location cost of living, family structure, other assets, health, interests etc. As a guide, the Center for Retirement Research at Boston College in the United States recently assumed 73 percent of a household's annual pre-retirement income as a target for annual income in retirement. ![]()
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