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Resolving to Retire with a Nest Egg

When it comes to New Year's resolutions, saving more money is a popular one — even if it's seldom kept. Americans are not terribly good at squirreling away and investing part of their income for their golden years.

At lunchtime in downtown Boston after Christmas, the streets were thick with people dashing around to stores and going out to eat. Leah Volpe was carrying a shopping bag in one hand. And she was about to do something that might make her financial planner quit in protest — she's pulling out money from her 401(k) so she can go to Bermuda on vacation.

"I'm going to enjoy myself," she says "I'm only 31 so I don't really care about retirement yet."


A Great Wonder

The money you save in your 20s and 30s will give you a tremendous return compared with what you scramble to save when retirement is just around the corner. Steve Mariotti, the founder and president of the National Foundation for Teaching Entrepreneurship, sees the mathematical forces at work as key — not just for retirement but for teaching people to rise out of poverty.

"I think one of the most important things that you can teach a young person is the power of compound interest," Mariotti said. Albert Einstein agreed when he called compound interest one the greatest wonders of the universe.

Here's an example: If you start saving $300 a month — or $3,600 a year — when you're 25, and earn an 8.5 percent annual return and reinvest your earnings, that money will be worth $1,064,457 when you're 65.

But if you wait until you're 35 to start saving the same amount, you'll only have $447, 173. If you wait until you're 45 you'll have even less — $174,000. Think about that. If you start when you're 25, you're saving for just twice as long, but earning more than eight times as much money.


If you start saving early, Mariotti suggests putting away — as a back-of-the-envelope calculation — 10 percent of your income. If you wait until later in life, you'll have to start saving 20, 30, or 40 percent of your income to try to catch up. So the longer you wait, the larger the burden.

Financial advisers recommend that you have accumulated 10 to 15 times your salary if you want to enjoy a similar standard of living in retirement. So if you earn $80,000 a year, that's in the neighborhood of $1 million.

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