It’s never too late to start saving for retirement, but how early should you start? Whether your teen is lifeguarding at the local pool, scooping ice cream, or mowing lawns, summer gigs offer more than just spending money—they present a golden opportunity to kickstart a lifetime of financial security. The reason for this is compound interest, which we’ll run the numbers on below. If you’ve been waiting to invest in your retirement until you check off other financial goals (cough cough, students loans), let’s breakdown why you should consider setting aside at least some savings. And if you have a teenager who rolls their eyes at the idea of contributing part of their very first paycheck to their far-off retirement, here’s how you can explain to them why it’s so important to start saving as early as possible.
Why saving early is so important
Simply put, compound interest means the interest on an investment grows exponentially—rather than linearly—over time. What this means for a retirement account like a 401(k) or Roth IRA is that every little bit you contribute goes a long way, especially compared to a traditional savings account. The key is that with compound interest, how early you start saving usually outweighs how much you contribute. Even an investment left untouched for decades can keep growing.
Let’s take a look at some specific scenarios that show how compound interest works for you. These all assume a moderate 6.5% annual investment return on their retirement funds, which is around what most return on investment calculators will be set to automatically, and a retirement age of 66.
Scenario 1: Starting at age 35
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You save $1,500 per year from age 35 to 55
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Total amount invested: $30,000
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By age 66 (31 years after starting), your investment grows to: $186,138
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Compound interest earned: $156,138
Scenario 2: Starting at age 25
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You save $1,500 per year from age 25 to 45
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Total amount invested: $30,000
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By age 66 (41 years after starting), your investment grows to: $373,569
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Compound interest earned: $343,569
Scenario 3: Starting at age 15
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You save $1,500 per year from age 15 to 35
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Total amount invested: $30,000
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By age 66 (51 years after starting), your investment grows to: $749,029
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Compound interest earned: $719,029
These scenarios clearly demonstrate the incredible advantage of starting to save early:
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Starting at 35: Your $30,000 investment grows about 6.2 times.
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Starting at 25: Your $30,000 investment grows about 12.5 times.
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Starting at 15: Your $30,000 investment grows about 25 times.
By starting just 10 years earlier (at 25 instead of 35), you more than double your retirement savings. Starting at 15 instead of 35 results in four times the retirement savings.
The teen summer job advantage
Now, let’s put this into the context of summer jobs. If your teen saves $1,500 from summer jobs each year from age 15 to 19 (just five years):
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Total invested: $7,500
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By age 66, this grows to: $190,893
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That’s over 25 times the initial investment.
If they save $750 (half of the previous amount) each summer from age 15 to 19:
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Total invested: $3,750
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By age 66, this grows to: $95,446
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Still over 25 times the initial investment!
Even small amounts saved from summer jobs during the teen years can grow into substantial sums by retirement age. The key is to start early and let compound interest work its magic over many decades.
Of course, the best-case scenario is that you start saving early and never stop investing. But the scenarios above demonstrate how important time is as a factor, and how any savings at all—even if left untouched for years—can go a long way.
Motivating your teen
While retirement may seem like a distant concern to a teenager, these numbers can help illustrate the incredible opportunity at hand. Here are some tips to encourage your teen to start saving:
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Show them the math: Use an online compound interest calculator to demonstrate how their money could grow. To run the numbers yourself, Investor.gov has a calculator that allows you to test out different saving scenarios that work for your financial situation.
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Make it relatable: Discuss future goals like buying a house or traveling the world, and how early saving can help achieve these dreams.
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Start small: Encourage them to invest even a small percentage of their earnings.
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Lead by example: Share your own retirement saving strategies and experiences.
The bottom line
Encourage your teenagers and young adult children to contribute to a Roth IRA or 401(k) from their very first paycheck—and they’ll thank you later as they watch those numbers grow and grow. And remember that no matter your age, you can still take advantage of compound interest, too, even with a small initial investment. What matters is that you start to save and invest ASAP. Check out our guide to how much you should have saved at every age.
