Regardless of your age, you should be thinking ahead to your retirement. The earlier you start, the easier it will be to accumulate real wealth over time.

I started thinking about retirement as a 15-year old high school freshman. My high school algebra teacher had just taught us the concept of compounding. I immediately grasped the implications. Even a small rate of return over a long period of time could easily result in a seven-figure retirement account.

Consider 50 years of compounding, which I was looking at as a 15-year-old. I already had a job. I could easily put away $100 a month. If I did that for 50 years and got merely 5% average returns — half the long-term return of the S&P 500 — I would have a quarter of a million dollars at retirement. If I could achieve the average long-term return of the S&P 500, $100 a month would turn into $1.4 million at retirement.

Most teenagers may find it difficult to put away this much, so let’s say you wait a decade to start planning for retirement. You are 25, and early in your career. You can save a bit more than you could have at 15. Let’s say you can put away $300 a month until you are 65. If you can get 5% annually, you will end up with $435,000 at retirement. If you can achieve the average long-term return of the S&P 500, $300 a month would turn into $1.6 million at retirement.

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If you waited a decade, your savings rate has to be nearly three times higher to achieve similar results. Now, consider that you waited until you are 35 before you get serious about retirement. The $300 a month savings rate in the previous paragraph would only grow to $239,000 at 5% and $592,000 at 10%. In the latter case, waiting a decade cost you just over a million dollars.

If you wait until 35 to start, to reach a million dollars by 65 at a 5% interest rate, you have to save $1,250 a month. That’s still achievable for many, but nearly double the amount you would have needed at 5% if you had started a decade earlier.

Waiting until 45 makes things much more challenging. Now you need to save over $2,500 a month at 5%, or $1,500 a month at 10%.

So, the lesson here is not to procrastinate. Start early, and let time and compounding make you rich. If you do that, then at the age of 55 you can start positioning your assets for retirement. If you want to retire at 65, you have another decade of compounding in front of you. However, you have less time to recover from big losses. Now is the time to take an inventory of your portfolio and start shifting it toward more conservative investments.

Finally, if you are 65, you want to think about setting up your portfolio to extract regular income during your retirement. Position yourself largely in more conservative income-generating stocks and bonds. Also consider supplementing your income by selling covered calls and cash-covered puts. An 8% yield in retirement is pretty easy to reach using these strategies. Which, if you have a million-dollar portfolio, would generate $80,000 a year in income.

Worried that you won’t have enough money for your golden years? Consider the investment advice of my colleague, Jim Pearce.

Jim is the chief investment strategist of our flagship publication, Personal Finance. We’ve just launched Jim’s new premium advisory, called Personal Finance Pro.

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