Millions of college graduates are entering the workforce and facing a period of excitement mixed with anxiety as they begin their careers. Finding a job, securing housing, and leaving home are significant steps. Amid these decisions, one thing stands out as essential: start investing for retirement as soon as possible.
While thinking about retirement at the start of your career might seem premature, it’s actually the most crucial step toward retiring wealthy and comfortable, regardless of your income level.
Time is Your Best Ally
Many people delay serious retirement investing until their 30s or 40s. Though it’s better to start late than never, delaying means you’ll need to save more aggressively, often at the risk of overextending your budget or taking on excessive investment risk.
By starting to save and invest right out of college, you harness the power of time and compounding, making investing easier, less risky, and more affordable. With enough time, you might only need to set aside $50 per month to retire as a millionaire.
Retire as a Millionaire
If that seems unrealistic, consider the math. Compare two scenarios: starting to invest at 22 versus 32.
At 22, one of the smartest moves is to invest in an exchange-traded fund (ETF), such as the Invesco QQQ ETF, which tracks the Nasdaq 100. This index, though volatile in the short term, has the best long-term returns among major indexes, averaging an annualized return of 13.5% since its inception in 1985.
If you start investing $50 per month in the Invesco QQQ at 22 and continue until you retire at 65, you could accumulate $1.1 million, based on the historical returns of the Nasdaq 100. This calculation assumes consistent monthly investments and a 13.5% annual return, which you can verify using online investment calculators.
The Power of Compounding
To illustrate compounding’s power, let’s consider starting at 32 instead. After 33 years of investing $50 per month at the same return, you’d have around $306,000 by age 65—nearly $800,000 less than if you had started at 22. Waiting until 42 would yield only about $83,000.
This example highlights the significance of starting early. Remember, this is just from a single ETF outside of any 401(k) or IRA. If your company offers a 401(k) with matching contributions, investing in it from the start is another smart move that could make you a multi-millionaire by retirement.
In summary, the best decision any recent college graduate can make for their future is to start investing right away.