The ins and outs of retirement accounts, part 1: The 411 on 401(k)s

Like sunspots and wrinkles, saving for retirement is one of those things that can be hard to take seriously when you’re young. Still, in the same way skin damage accumulates over time, so do retirement savings. The more sunscreen you wear now, the better you’ll look in your 60s, and the more money you stash away today, the better your balance sheet will look then too.

Because investments can generate compound returns — that is, you can make profits on your profits, not just your principal — starting early makes a big difference. Consider this example, which I did with a simple retirement calculator:

Let’s say you’re 25 years old, you get paid twice a month, and you’ve decided that you are going to have $100 from each paycheck deposited directly into a retirement account. Let’s assume your investments earn 6% a year. Let’s also assume that you never get a raise, never take a pay cut, and instead just continue adding to it at the same rate until you retire at age 67. At that point you’ll have $422,281 in your account.

To read the full story: Daily Finance