If you're saving for retirement, there are a number of different options available to help you reach your goals. A 401(k) plan is an example of a popular plan that enables individuals to save for retirement. Many employers provide 澳洲幸运5官方开奖结果体彩网:matching contributions to such plans, making them a particularly strꦛong saving🅠s option. The 401(k) is available in two categories:

• The Traditional 401(k): This option allows you to save pre-tax dollars to build a retirement nest egg.
• The Roth 401(k): Added to many workplace plans in 2006, this option uses 澳洲幸运5官方开奖结果体彩网:after-tax dollars to help you build savings. In retirement, withdrawals from a 澳洲幸运5官方开奖结果体彩网:Roth 401(k) are tax-free and penalty-free as long as you're over age 59 ½ and it's been five years since you first contributed to the account.
  

You might be asking yourself: "How much will my 401(k) be worth in the future?" There are many savings calculators that can help you estimate how much a retirement account balance can grow over time. Even a modest amount of savings can develop into a significant sum of money.

The Benefits of Compounded Savings

You might be wondering what your 401(k) will be worth down the line. The answer d📖epends on more than just your contributions and interest.

One of the greatest advantages of a long-term savings plan is compounded growth. 澳洲幸运5官方开奖结果体彩网:Compounding occurs when returns generated by savings are𝔍 reinvested back into an account and then generate further returns of their own. Over a period of many years, compounded earnings on a savings account can actually be larger than the contributions you have made to the account.

This potentially exponential growth of earnings is wha𒆙t allows your retirement savings to grow faster as more time pas🍸ses.

The Benefits of Starting Early

One of the greatest assets any investor has is time. The longer your account balance has to grow, the greater your chance of achieving your savings goals. How much you put aside to save is, of course, important—but when you start saving is just as important.

Here's a look at two different investors. Amanda saves $5,000 a year between ages 25 and 35, then stops saving altogether. Blake saves $5,000 a year between ages 35 and 65. Blake has saved three times as much as Amanda.

However, Amanda will have a larger baꦑlance at age 65. The reason that Amanda comes out ahead is the effect of compounded earnings over time. Amanda has giveꦚn her account an extra 10 years to grow, and the compounded returns that the account experiences actually outweigh any future contributions that are given less time to grow. Starting early gives you the best chance to save for a secure retirement.

Or consider this example from Peter J. Creedon💫 CFP®, ChFC®, CLU®, chief executive officer of Crystal Brook Advisors in New York, New York:

A 25-year-old who invests $5,000 a year with an 8% average annual return for 43 years should have approximately $1.65 million. If you started saving 10 years later and invested $5,000 per year with the same 8% average annual return, after 33 years the result is approximately $729,750. Not magic, just the 澳洲幸运5官方开奖结果体彩网:time value of money. The 35-year-old would have to invest approximately $11,290 a year to achieve the same amount as the 25-year-old under the same time and averages.

How a 20-Y♔ear Savings Plan Can Yield 6-Figure Savings

Given a 20-year 澳洲幸运5官方开奖结果体彩网:time horizon, how much will your 401(k) be worth? It depends on the scenario. Let's assume that you start with zero 401(k) retirement savings and earn a $50,000-per-year salary. You save 8% of your salary and receive a 3% matching contribution from your employer. You also receive 2% annual salary increases and can earn a 7% 澳洲幸运5官方开奖结果体彩网:average annual return on the savings. You can modify these inputs based on your actual situation, including 澳洲幸运5官方开奖结果体彩网:changing interest rate levels.

You would build a 401(k) balance of $263,697 by the end of the 20-year time frame. Modifying so💫me of the inputs even a little bit can demonstrate the big impact that comes with small changes. If you start with just a $5,000 balance instead of $0, the account balance grows to $283,891. If you save 10% of your salary instead of 8%, the account balance becomes $329,621. Extend the time frame out to 30 years instead of 20, and the balance grows to $651,306.

"The greatest assets we have available to grow our retirements are compound interest and time," says , founder and managing partner of Dias Wealth LLC in Lake Mary, Florida. "Always think of the Rule of 72, which is the time value of money and how long it takes for $1 to double to $2. In theory, if you obtain a 6% rate of return (although it won’t be constant), it would take 12 years for your money to double."

The Bottom Line

In most cases, even mod♊est savings can grow significantly over time.

"Taking full advantage of your 401(k) so that you receive the employer match is crucial," says , founder and president of Index Fund Advisors, Inc., in Irvine, California, and the author of Index Funds: The 12-Step Recovery Program for Active Investors. "On average, receiving th🔜e full employer match increases an ๊employee’s overall savings rate by almost 40%, which is substantial."

Time and compounded growth are two of your biggest allies. Take advantage of them to hel🦄p build a secure retirement.