Funding your retirement

When you retire, you'll still need to support yourself. How will you manage when you're not receiving a paycheck? Social Security will likely cover some of your costs. You may have a pension from your employer. But those benefits alone will probably not be enough to let you live the way you'd like to in your retirement years. To help ensure a financially secure retirement, you'll need a plan for putting some of the money you're earning now into savings and investment accounts for the future. 

Even if you're a long way from reaching retirement, and your primary goals are buying a home or paying for your children's education, you'll want to begin retirement planning as soon as you can. Taking small steps now, while time can work on your behalf, will save you a lot of anxiety later, when you find yourself closer to retirement.

Compound earnings

Time is a crucial element when it comes to building a retirement account — and the more time you have, the better. That's because of compounding, or the way earnings accumulate when you reinvest them. For example, if, one year, you earn an 8% return on $10,000, your new total is $10,800. If you earn another 8% the following year, the new base amount of $10,800 earns $864, and your balance grows to $11,664. Because your earnings have the potential to generate more earnings, the longer the process continues, the bigger impact each dollar has. In fact, after 30 years earning 8% annually, your $10,000 could be worth $100,627 before taxes.