The second person didn’t start until she reached age 35. Then, realizing that she needed to catch up, she kept investing $6,500 a year for the next 30 years. That amounted to a total of $195,000 in contributions. At age 65, her account was worth $544,710.90.
Again, that’s a nice nest egg. But consider this: She invested much more money than the early bird, made regular contributions for a much longer period, yet still lagged her counterpart by more than $14,000.
When Money Is Scarce
Clearly, starting early is better, but sometimes, and especially in your 20s, you may just not have the money.
In that case, Ms. Bruno suggested considering a Roth I.R.A. as a kind of double-duty vehicle — one that can be used for long-term investing but also as a repository for an emergency fund.
Unlike with a traditional I.R.A., you won’t get an immediate tax break with a Roth. But you can withdraw the principal (not the earnings) from a Roth at any time without a penalty, so it may be a reasonable option for money you may need to draw on. If you use it that way, though, I would avoid investing the emergency fund in the stock market because it may not be there when you need it.
Similarly, if you are drawing down money in retirement, or are about to do so, in any kind of account, I would shift some of the money to bonds and shorter term fixed-income funds, for greater security.
For truly long-term investing, using automatic deductions in a workplace tax-sheltered account is a wise strategy, especially if you can get matching contributions from your employer. Putting aside at least 15 percent of your paycheck is what T. Rowe Price recommends, but if that’s too much to start, don’t worry. Begin with whatever you can, Mr. Young said, and then increase the percentage in future years.