Compound Interest

Compound Interest: Will It Help You Save for Your Retirement Years?

You would want to relax and have fun when you reach the retirement age. You may travel around the world, start a new hobby, or relax at a beach in a tropical country. Experiencing any of these, however, would require big money. That’s why it’s important to save up while you’re young.

Saving up for retirement is difficult for some people, though. Sixty-six percent of millennials say they are not on track to save for retirement. You may be in the same situation because of, for one, housing costs, which is the top reason the younger generation is falling behind their retirement savings.

More Than the Money You Have

The money you’re able to put into the market is not the only way you can save up to have a comfortable retirement. The amount of time you keep your money invested also helps you enjoy your golden years. With compound interest, for instance, your money will grow the longer you keep it invested in your retirement fund.

Experts think compound interest originated in Italy during the 17th century. This form of interest allows you to earn money on both the initial sum of money invested and the interest you have accumulated over time. The original investment and the income earned from them grow together, unlike simple interest.

Also Read: All About Savings Account Interest Rate

Additionally, this type of interest can be compounded on different frequency schedules: continuous, daily, or annually. The number of compounding periods also affects the calculation of compound interest. The higher number of compounding periods means greater compound interest.

Compound Interest


Start Saving for Your Retirement in Your 20s 

Although compound interest is a big help in your savings, it’s essential to save up while you’re still young. You may not yet think about starting to save for your retirement while you’re in your 20s. You’re still building your career, after all.

Youth, however, is ideal to instill the habit of saving and build your wealth for retirement. It allows you to maximize the power of compound interest, where you can reap big rewards in the future despite saving a little now.

In your 20s, you’re less likely to have a mortgage to pay or a family to support. This situation makes it easier for you to save. Maximize your retirement savings through these tips:

Start Saving Now

Putting off your savings longer will set you back more in the long run. Despite the challenges of paying off student loans or rent, you can find a way to save a few bucks. Cut down your expenses in some areas and save at least 10 percent of your income as much as possible.

Register for Employer’s 401(K)

You may qualify to participate in a 401(K) at work. Sign up for this program, so the money you save will go straight into the plan before taxes. Less income will be taxed afterward. 

Open a Roth IRA

In case you don’t have 401(K), you can open a Roth IRA. You will have to fund it using the money from your paycheck that has been taxed. When you retire, however, you can withdraw the money tax-free. Although you can’t save money on your taxes, you can avoid paying taxes on your future investment earnings.

Compound Interest


It may seem hard at first to save money when you’re young. But it’s well worth the effort once you retire. After working for many years, you deserve to live out your retirement in comfort. Take advantage of compound interest today, and you could secure a wealthy retirement.