Buzz
It's never too late to begin saving for retirement, but how soon should you begin? Whether your teen is lifeguarding, working at an ice cream shop, or cutting grass, summer jobs do more than just bring in spending money—they offer a valuable chance to start building financial stability for the future. The key to this lies in compound interest, and we’ll break down the numbers for you below. If you’ve been postponing retirement savings until you've taken care of other financial priorities (like student loans), here’s why you should consider setting aside some money now. And if you have a teenager who’s not thrilled about saving a portion of their first paycheck for retirement, here’s how you can explain the importance of starting early.
The importance of starting to save early
In simple terms, compound interest means that the interest on an investment doesn’t grow in a straight line—it grows exponentially over time. For retirement accounts such as a 401(k) or Roth IRA, this means that every dollar you contribute can accumulate far more than it would in a regular savings account. The real benefit of compound interest is that when it comes to retirement savings, how early you start usually matters more than how much you contribute. Even an investment that’s left alone for years can continue to grow.
Let’s explore some specific examples that demonstrate how compound interest can work in your favor. These scenarios assume a moderate 6.5% annual return on investment for retirement funds, which is generally the default rate set by most return on investment calculators, with a retirement age of 66.
Example 1: Starting at 35 years old
You contribute $1,500 annually from age 35 to 55
Total amount invested: $30,000
By age 66 (31 years after starting), your investment grows to: $186,138
Compound interest earned: $156,138
Example 2: Starting at 25 years old
You contribute $1,500 annually from age 25 to 45
Total amount invested: $30,000
By age 66 (41 years after starting), your investment grows to: $373,569
Compound interest earned: $343,569
Example 3: Starting at age 15
You contribute $1,500 annually from age 15 to 35
Total amount invested: $30,000
By age 66 (51 years after starting), your investment grows to: $749,029
Compound interest earned: $719,029
These examples clearly illustrate the extraordinary benefit of starting early:
Starting at 35: Your $30,000 investment grows approximately 6.2 times.
Starting at 25: Your $30,000 investment grows approximately 12.5 times.
Starting at 15: Your $30,000 investment grows approximately 25 times.
By beginning just 10 years earlier (at 25 instead of 35), you more than double your retirement savings. Starting at 15 instead of 35 results in quadrupling your retirement savings.
The advantage of summer jobs for teens
Now, let’s put this into perspective using summer jobs. If your teen saves $1,500 annually from summer work between the ages of 15 and 19 (just five years):
Total invested: $7,500
By age 66, this grows to: $190,893
That’s more than 25 times the original investment.
If they save $750 (half of the previous amount) each summer from age 15 to 19:
Total invested: $3,750
By age 66, this grows to: $95,446
Still over 25 times the original investment!
Even modest savings from summer jobs during the teenage years can grow into significant amounts by the time retirement arrives. The secret lies in starting early and allowing compound interest to do its work over several decades.
Naturally, the ideal scenario is to begin saving early and continue investing without interruption. However, the examples above clearly show the importance of time and how even minimal savings—left to grow over the years—can result in substantial growth.
Encouraging your teen
Though retirement may feel far off to a teenager, these figures can highlight the incredible potential they have to build wealth. Here are a few strategies to help motivate your teen to begin saving:
Present the numbers: Use an online compound interest calculator to show them how their money can grow over time. Investor.gov offers a calculator to experiment with various savings scenarios based on your financial situation.
Make it personal: Talk about future dreams like owning a home or traveling the world, and how starting early can make those dreams a reality.
Start with small steps: Encourage them to invest even a fraction of their earnings.
Lead by example: Share your own experiences with retirement savings and strategies.
The takeaway
Encourage your teens and young adult children to start contributing to a Roth IRA or 401(k) from their very first paycheck—and they’ll thank you later as they see their savings grow over time. And remember, no matter your age, you can still benefit from compound interest, even with a modest initial investment. The key is to begin saving and investing as soon as possible. Take a look at our guide on how much you should have saved at every stage of life for more insights.
