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.