compound investing

How I’ll Retire Rich After Only 3 Years of Saving

“That can’t be right…” I said to myself. I plugged in the numbers again. Sure enough, my investment was going to grow by 750% and I was going to retire rich after only 3 years of savings.

It’s no secret how I managed to pull this off. But I’m still in shock.

A Short Road to Retire Rich: My First (and Only) 3 Years of Saving for Retirement

After deciding to go debt free this year and funnel all of my money toward paying down my student loans, I stopped adding to my retirement accounts. It was a tough decision, and I initially felt guilty about it, but I knew I had to make debt a priority.

And I felt like I’d done enough for a 25-year-old 🙂

I’d spent the first 3 years of my young professional life putting away 15% of my paycheck into my 403(b) and Roth 403(b) (the nonprofit equivalent of a 401(k)). At the time, I didn’t really miss the money that was coming out of my paycheck each month – it was probably only a few hundred dollars, and I didn’t notice it (ah, the beauty of automatic contributions).

But that few hundred added up – and thanks to a generous 5% employer match, I’d amassed almost $40,000 in my retirement account after only 3 years of savings.

I’m pretty proud of that number (and proud of my younger self who had the foresight and desire to start stashing money away). $40,000 in by age 25 is downright impressive.

But my priorities changed, and I soon realized that I had to sacrifice my retirement contributions to focus on my loans.

How I’ll Still Retire Rich Even Though I Stopped Investing

As of October 2012, I haven’t added a single penny to my retirement account. And I probably won’t add anything else until I’m completely debt free.

And while I’m happy that I’m making progress on my loans, I wonder if I’m making a mistake by taking a year off of my investments. I know that $40,000 in the bank isn’t enough to let me retire rich, if at all (maybe I could retire for a year on that – but I plan on living a lot longer than 61-years-old!).

So I did some quick calculations to figure out what my retirement would look like if I stopped today.

And I was shocked.

Thanks to compound investing, I could stop contributing for the rest of my life and retire rich.

Here’s the quick math that I did using an Online Investment Calculator:

  • Present value: I have $41,500 is in my account today
  • Number of years to invest: I won’t touch it for 34 years (until I retire at age 60)
  • Interest rate: Let’s say my investments (and anything I earn on those investments) compound with an average annual return of 6%
  • Contributions: None. I’m done contributing.

Plug in those numbers and…

My retirement stash: $300,917.55

Wow. That’s a 750% of my original investment!

compound investing

Now this doesn’t account for inflation, my math may be slightly off and in reality, $300,000 isn’t really rich 🙂 I’m also not going to stop contributing for the rest of my life (because hell, I want to be a millionaire when I’m old!).

But it’s powerful stuff to know how compound investing and starting early can help me retire rich.

The Secret: Start Today, Retire Rich Tomorrow

So my secret really isn’t a secret. It’s just an awesome combination of time and compounding working it’s magic.

I’m sure you’ve heard it before “start investing or contributing to a retirement plan early.” But for me, this quick math is concrete proof that time can actually help you retire rich.

Compound interest

So if you’ve hesitated to invest because you’re an investing virgin or you think you’ll just wait and start sometime later, just do it – now. Start today, start tomorrow – start as soon as possible. Because just a little bit of money can set you up for life (and your future self will be super thankful).

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