Sadly, not all of us are such good savers. What these late savers do not realize is the dramatically different results you can have by starting early. By only waiting a few years to start your savings plan you will be missing out on a large amount of investment growth.
6 Year Plan
In our example, a saver starts a savings plan only six years out from the time your student enrolls. With an initial $2,500 contribution and a monthly deposit of $50, after six years your balance will be $7,922. If the contribution was $100, the balance would be $12,264. If the contribution was $200 per month, the total in the account would be $20,948. These figures and growth is dependent on a 6% annual investment return.
12 Year Plan
In 12 year example, a saver starts a savings plan only twelve years out from the time your student enrolls. With an initial $2,500 contribution and a monthly deposit of $50, after six years your balance will be $15,686. If the contribution was $100, the balance would be $26,246. If the contribution was $200 per month, the total in the account would be $47,367. These figures and growth is dependent on a 6% annual investment return.
18 Year Plan
In 18 year example, a saver starts a savings plan only eighteen years out from the time your student enrolls. With an initial $2,500 contribution and a monthly deposit of $50, after six years your balance will be $26,806. If the contribution was $100, the balance would be $46,270. If the contribution was $200 per month, the total in the account would be $85,200. These figures and growth is dependent on a 6% annual investment return.
As the chart illustrates, the sooner you start, the sooner you can take advantage of the compounding effect of time on your investment. Contributing the same dollar amount to your account regularly can be an effective investment strategy and may also help you lower the average cost of your investment. Of course, no method of investing can prevent market risk. Investment return and principal value will fluctuate so that when withdrawn, your investment may be worth more or less than the original amount invested.
With these figures we can conclude that time is the best friend of a saver. The most dramatic results are the plans with a $200/month deposit. The 18 year time frame resulted in the money doubling. With the 12 and 6 year time frame the savings were just as dramatic. The earlier you start the more growth you will have.
Got further questions? Catch me on twitter and DM me @529SavingsPlans or e-mail me at 529CollegePlans at Gmail.com. Want to be heard? Leave a reader comment below.
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