This post is part of the Money Blog Network monthly project – Finances at Graduation
Dear High School Graduate:
I’ll keep this short and sweet. One day, you’ll probably want to retire. But, in order to do so, you are going to need money – and lots of it. Do yourself a huge favor. Open up a Roth IRA and do your very best to fully-fund it. Need some motivation?
Here’s a chart depicting what could happen if you invested just $5000 at the age of 18 – left it alone – and withdrew it at the age of 72.
As you can see, rate of return is a big deal. I encourage you to read one of my favorite books – The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Book Big Profits) – It will help you understand the stock market and rates of return.
Please note, the calculations above are based on a single $5000 contribution, made at the age of 18.
Imagine if you made $5000 contributions, each year, until the age 72 –
Wow. Even at a conservative return of 9%, your ending balance would be over 6 million dollars. Pretty cool. And, if you get ‘lucky’ – you’ll have more than 31 million dollars with which to play!
I realize $5000 is a lot of money – especially when you are 18. But, look at the potential rewards!
One final note – Money inside of a Roth IRA grows tax free! That’s right. Pay taxes now, while your tax rate is relatively low, and watch your contributions grow and grow and grow. Then, when you are ready to retire, you can withdraw money from your Roth IRA – and you will not have to pay taxes on those withdrawals.
Your debt free friend,
Be sure to check out the other contributions to this topic:
Consumerism Commentary – Financial Tips for College Graduates
Free Money Finance – Money Advice for Graduates
Get Rich Slowly – Personal Finance Made Easy
Mighty Bargain Hunter – Graduates, You Might be Shocked
No Credit Needed – A Fully Funded Roth at Age 18
Wise Bread – My Best Advice for New Graduates
Five Cent Nickel – Four Tips For Recent Graduates
Side Note: With any investment, there is a potential for loss. Also, inflation effects the real rate of return on any investment. I just love to crunch numbers and think “what if” about future financial goals.