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Start Saving for Retirement at 16!

By JLP | June 30, 2006

I know, I know. Saving for retirement most likely is not on the minds of most 16-year olds. However, this could idea could be funded by a parent or grandparent as long as the teen has earned income that is at least as much as the contribution.

In its simplest form, growing money has three main ingredients:

1. Money
2. Growth rate or rate of return
3. Time

When you are 16, you have time on your side. Take a look at this calculator I created and you’ll see what I mean:

CLICK on the calculator to go to another page so that you can input your own data.

Starting Young

This calculator assumes that you invest $2,000 per year in a Roth IRA for four years starting at age 16. So, by the time you are twenty, you can stop contributing. The second part of the calculator shows you how much that nestegg could be worth at different points in your life. Keep in mind that these amounts are adjusted for inflation. So, although the amounts may not seem that big, have been adjusted for inflation. I made the such that you can change the contribution amounts and the expected rate of return and the inflation rate. Even better, withdrawals from this account at retirement will be tax-free since it is a Roth IRA

Pretty cool, eh? It is truly amazing the how such a relatively small amount of money can grow to a significant sum of money given enough years. If you are a 16-year old, you might want to get started on this right away. If you are a parent or grandparent of a 16-year old, have them read this post and consider helping them get started by either giving them the contribution amount or matching whatever they are able to save. It could be the best gift you could give them.

To get an idea of how much you can save over a lifetime, check out my Lifetime Savings Calculator.

Topics: Calculators, Kids and Money | 7 Comments »


7 Responses to “Start Saving for Retirement at 16!”

  1. Carl Says:
    June 30th, 2006 at 10:49 am

    Could it start earlier to get it out of the way of College expenses? I know at 18 all money was going towards school including any gifts.

  2. Kira Says:
    June 30th, 2006 at 10:52 am

    All my jobs pre college were under the table. You need to be able to prove income in order to put anything in a Roth IRA. If you earn very little you don’t have to file but you do have to have backup documentation. I wonder what my retirement account would look like if my parents had socked away my baby modeling money from when I was in those JCPenney ads… =)

  3. » Weekend Mish-Mash on Blueprint for Financial Prosperity Says:
    June 30th, 2006 at 11:54 pm

    [...] Are you 16? Are you saving for your retirement? Why not!?!? [...]

  4. Dan Says:
    July 1st, 2006 at 12:11 am

    I’d change the numbers to 7 and 5.

  5. Drew Says:
    July 1st, 2006 at 9:27 am

    This is a great idea in theory, but how many kids will be able to keep their hands off this money until retirement? There is no penalty assessed for yanking money out of a Roth IRA for education expenses or a first home. Few children these days have any concept of delayed gratification. They want the nicest cars, homes, toys, etc. and they want them now. My guess is that a majority of Roth IRAs started by parents for their teenage children won’t last ten years before the money is withdrawn for an immediate want. Too bad. It’s a great idea!

  6. JLP Says:
    July 1st, 2006 at 10:50 am

    Drew,

    Aren’t all good ideas only good if someone actually follows-through on them? My goal for this blog is to help people realize what they CAN do if they just do it!

    Thanks for the comment.

  7. fivecentnickel.com Says:
    July 4th, 2006 at 9:55 pm

    Weekly Roundup – 06/30/06 (A Few Days Late)

    Back to the grind… Our vacation is over (more on that later) and I’m more than a few days late with last week’s roundup, so… Without further ado, here’s a quick look at things that caught my eye from across the MoneyBlogNe…

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