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Middle-Aged Investing Without Ruining Retirement?

NEW YORK (MainStreet) — Think fast: What's the most important rule in retirement investing?

Easy: Save as much as you can as early as you can.

The problem is that this rule can be kind of discouraging. We'd all just love to save a bundle in our 20s to give our investments four or five decades of compounding. But young people often don't earn much when they're just starting out, and they have lots of competing demands for cash — getting that first car, building a down payment for a home, paying off student loans.

So as a practical matter, many people can't get serious about investing before their 40s. How much headway do they lose?

It may seem surprising, but a late start might not be the catastrophe you'd think – if sound preparation allows the midlife investor to set aside a lot more than a 20-something can. For many people, that's quite possible if income has gone up and expenses have been kept under control. By midlife, expenses such as child rearing and accumulating a home down payment may be in the past.

So let's look at some numbers generated by the Savings, Taxes and Inflation Calculator:

Imagine that at age 25 you set aside $100 a month for retirement and that it grew at 8% a year. In 40 years that $100 would become $2,172. Save $100 every month and you'd have a pretty nice nest egg, though inflation and taxes would hurt.

Now fast-forward to age 45. You make more money and you've kept your expenses under control, so suppose you could save $500 a month and earn the same 8%. At age 65, after 20 years, that $500 would grow to $2,330. Not bad.

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