NEXT

When do I need to start investing for my retirement?

We get it: Retirement is just about the last thing on your mind when you're in your 20s. However, starting to invest for retirement as soon as you finish school and begin earning income is a brilliant financial move. The reason is a magical little thing called compounding. It's what happens when your interest keeps earning interest, year after year.

If you start early, the effects of compounding can be huge. For example, suppose you start setting aside $1,000 a year (about $19 a week) when you're 25. You put it in a retirement account earning 7% a year. Even if you stop investing completely when you turn 35 - that is, you've invested for only 10 years - your total investment will have grown to nearly $113,000 by the time you turn 65 and are ready to retire. That's right: A $10,000 investment turns into $113,000.

OK, here's where it gets really interesting. Let's say you do the same exact thing, but you don't start investing the $1,000 a year until you turn 35. And you keep on investing that much every single year until you turn 65. That is, you invest $1,000 a year for 30 years, rather than for 10 years as in the previous example. How much do you wind up with when you're 65? Only about $101,000. That's right: Even though you invest three times as much money, you wind up with less.

The earlier you start investing, the more you can benefit from compounding. That's why you need to get going as soon as possible.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.