The lesson in full
Retirement can last 20 years or more. Those years need money too, and the person paying for them will be future you.
A pension is money put aside while you work, to live on later. Examples: UK workplace pensions, Mexico's Afore, India's EPF and NPS, and Indonesia's BPJS Ketenagakerjaan (JHT).
At 7% a year (an example, not a promise), US$100 a month from age 25 to 65 grows to about US$250,000. From 45 to 65, only about US$50,000. Twice the years, about five times the money.
Many workplace schemes add employer contributions: extra money on top of your pay. Stay out of the scheme and you give that money up.
On top of the national or workplace scheme, many people add their own savings, and check their plan once a year or after a big life change.
- Common mistake
Myth: “I'm too young to think about retirement.” Young is the best time to start: every dollar you save now has the most years to compound.
- Key takeaway
The earlier you start, the less you need to put in. Time and compounding do most of the heavy lifting.
Quick check
- Why start retirement saving early? Compounding has more time to workReturns earn returns of their own. Forty years of compounding grows money far more than twenty.
- Employer contributions to a pension are... Extra money you miss if you don't joinYour employer adds money on top of your pay. If you stay out of the scheme, that money isn't paid to you.
- How often do many people review their retirement plan? Once a yearA yearly check catches changes in pay, goals or costs without reacting to every market move.
- At 7% a year, US$100 a month from 25 to 65 grows to about US$250,000. From 45 to 65 it grows to about... US$50,000Half the years doesn't mean half the money. Compounding needs time, so the later start ends with only about a fifth as much.