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:
2. Growth rate or rate of return
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:
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.