It’s relatively easy to save for retirement when you’re still young. Five thousand dollars set aside for a new baby grows to an amount that generates over a $100,000 a year in current-day dollars if the money earns 12 percent annually and inflation runs at 3 percent.
NOTE The data is a little sketchy, but small-company stocks probably deliver average returns of around 12 to 13 percent over long periods of time. Small-company stocks are, however, very risky over shorter periods of time.
The flip side of this is that it becomes difficult to save for retirement if you start thinking (and saving) late in your working years. If you’re 60, haven’t started saving, and want $25,000 a year in income from your retirement savings at age 65, you probably need to contribute annually more than you make.
Say you’re in your 50s