For instance, if you start contributing $6,000 to your plan a year earlier, that essentially puts an extra $6,000 into your IRA, and starts the investment process, well…a year earlier! This could add tens of thousands of dollars to your retirement account over your lifetime. (See: IRA Contribution Rules and Limits)
Below are two examples of the additional amount you could earn over the long term by not waiting to invest, based on a 5% annual return and a 10% annual return.
Whether you invest the maximum amount allowed ($6,000 for those under age 50 in 2022 and $6,500 in 2023) or a lesser amount, starting a year earlier may have a significant impact on your total savings over the long term. In the following illustrations, we show the impact that earlier contributions would have for an investor who contributes $6,000 a year.
As a hypothetical example, at an average annual return of 5%, after 10 years of $6,000 annual contributions, your portfolio would have grown to $79,760 – that’s $9,882 more than your account would be worth if you had started a year later. And as the table below shows, after 40 years, the returns from the early investment would have added $44,150 to the total IRA savings: