1. SmallIvy
    Mar 27 - 7:13 am


    Great post and sage advice. With the way the markets have been for the last 10 years, however, your $1000 probably would have still been worth $1000 now. That is if you were buying funds with the money. If you were buying individual stocks and were good at it (like buying Apple or AFLAC), you’d have several thousand now. You could have also turned it into $100 if you had bought GE or Freddie Mac.

    At retirement, your estimate is a bit low, assuming you can get 12%, which has been the market long-term average (which you may have been assuming a lower rate). At 12%, your original $1000 would be worth about $64,000 at 64 or $128,000 at 71. That goes for each $1000 invested, so if you stared with $10,000 you would have $640,000 at 64 and $1.28 million at retirement.

    • Andrea
      Mar 27 - 7:26 am

      Too….much….math… Head….pounding… =P

      I used a calculator that assumed 8% in both cases. Just trying to make a point, though I do appreciate the fine-tuned numbers. More proof that one doesn’t have to be a math or investing person to use a Roth! :)

      • SmallIvy
        Mar 27 - 11:47 pm

        Actually looking back, I screwed up the math. I was just using the rule of 72, which says you divide 72 by the interest rate, and that will give you the number of years until the amount you invested doubled. I was assuming 7 years to double, which is like 72/10, so the amounts I gave were for a 10% return. So at 10%, it would double about every 7 years.

        At 12%, which is the long term average for the stock market, it would double every 6 years. So if you invest at 20, it would double at 26, 32, 38, 44, 50, 56, 62, and 68, or 8 times. So you would have 1, 2, 4, 8, 16, 32, 64, 128, 256 times your original investment. This means your $1000 invested at 20 would be worth a cool quarter million dollars at retirement.

        This means that if you invest your first year’s state college tuition of $4000 instead of going to a state school, and flip burgers all your life and never invest another cent, you will retire a millionaire. Gotta love it when interest is on your side. Also gotta wonder if college is worth the price.

        • Andrea
          Mar 30 - 10:45 am

          ARGH! MORE MATH!!!! *runs away, hides, realizes this is why I fail at most financial things*

  2. scarr
    Mar 27 - 7:53 am

    I couldn’t agree with you more about the benefits of a Roth IRA - and if you make more than $105,000 a year you can do a Roth IRA conversion. Although I believe in putting money into a 401k or any other company matching retirement account, I still believe Roth’s are one of the best ways to save money!

  3. Rachel
    Mar 27 - 8:55 am

    Ugh this just reminds me that I was irresponsible with the 401k from my old job. I missed the deadline to move it to a place of my choosing and now it’s moving to wherever my former employer is taking it. Damn procrastination. I need to convert it to an IRA, not a Roth though, tax penalties are not ok.
    And more on the 401k note, some work plans are totally bogus with their 5 investment choices. **Shaking fist at current plan of suckiness**

    • Andrea
      Mar 30 - 10:53 am

      I rolled an old 401(k) into a traditional IRA, then ended up rolling it into my Roth later. In my case, the taxes weren’t too bad since I didn’t have much in the original account.

      I agree re: work plans. They always suck. At my last job, there was no employer match at all. Right before I left, their plan to get people to sign up was to promise the POSSIBILITY of a match, but only in a lump on Dec. 31st every year, and no one would know from year to year whether the company would match. *shakes head*

  4. Nick
    Mar 27 - 9:24 am

    Great to see you as part of the movement. If only they’d up the limit… I would work a second and third job just to “max the crap out of it.” :)

    • Andrea
      Mar 30 - 10:51 am

      I’m not there yet, since I haven’t even managed to max the crap out of $5k! But maybe someday I’ll be in a position to wish for higher limits.

  5. Alice @ Dont Debt
    Mar 27 - 9:41 am

    I’m not going to lie. I don’t have an IRA or a Roth IRA. Both are on my to-do list. I have been reading and learning about both, but honestly, until I get out of debt, I don’t have the extra money to put into either. I have a state job and I contribute 6.5% to retirement, while they contribute 14.2%. I know that I don’t need to count on that for my entire source of income upon retirement, but honestly, it’s the best I can do right now.

    • Andrea
      Mar 30 - 10:50 am

      I think you’ve got a good plan, especially since they’re contributing so much toward your retirement. Focus on debt for now, then you can always start additional retirement savings later. 20.7% is nothing to sneeze at!

  6. Shannyn @thefrugalpreneur.com
    Mar 27 - 10:47 am

    I have a Roth IRA and even if I can only contribute a measly sum to it while I’m in school, I made it a point to set up monthly contributions so at least I was doing *something,* since it’s so easy to feel disempowered when you’re broke, and equally easy to procrastinate!

    Any progress is good progress in my book!

    • Andrea
      Mar 30 - 10:49 am

      Agreed! I dream of the day when I can max out my Roth for the first time. May not be anytime soon, but at least I’m doing SOMETHING in the meantime!

  7. Jane
    Mar 27 - 11:34 am

    I think you might be incorrect on the limits. I believe you can contribute $6000 per year if you’re over 50, one of the few happy facts I learned last year when I crossed that threshhold.

    • Andrea
      Mar 27 - 12:37 pm

      Thanks for catching my error - correcting the post now. :)

  8. Nell @ Housewife Empire
    Mar 27 - 1:21 pm

    God, I’ve been aware of the power of compounding interest since my early 20′s, but I dragged my feet on investing in an IRA, and now I really need to start.

    • Andrea
      Mar 30 - 10:46 am

      It’s never too late! My dad didn’t start his retirement savings until he was 40, but he has hauled ass and managed to catch up, for the most part. You can do it!!!!

  9. The Roth IRA Movement
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