Why would someone in their 20s want to contribute to a retirement plan?
It's never too early to begin saving for retirement, regardless of which savings vehicle
you use. It's tempting to avoid saving for retirement, especially for people under 30.
After all, they reason, they'll have 30 or 40 years to build a retirement nest egg. But
one of the most powerful reasons to start saving early is that the earnings on your
retirement funds will begin compounding sooner. Consider this example, provided by Wealth
Enhancement & Preservation (The Institute Inc., Denver): Jo Anna, 28, deposits $2,000
to a tax-deferred retirement plan for 7 consecutive years and then at age 35 makes no
additional contributions to the plan. Her friend, Ted, thinks saving for retirement at age
28 is ridiculous and waits until he is 35 before making retirement plan contributions. He
then makes $2,000 annual contributions for the next 30 years. Jo Anna has made total
contributions of $14,000, and Ted has contributed $60,000. If both earn an average of 10
percent on their investments, which one of them has the greater retirement fund? Through
the magic of compounding, Jo Anna's balance has grown to $331,000; Ted's is $329,000. By
starting to save early, you will ultimately need to save less to have the retirement
lifestyle you dream of.