Investing: At what age and how much?
There are only three things you can count on when you start investing for your retirement future. No matter what age you begin, you will have to contend with risk, taxes and inflation.
There will always be inflation. Inflation is that weird economic effect on your dollar that makes it worth less over time. A dollar today will not, and this is a guarantee, be worth, at least in terms of purchasing power, the same in ten years.
So to counter inflation, we musy save enough to make today's dollar worth more at some point in the future.
Taxing Situation
Taking another bite out of your investment strategy is taxes. We will always have them and they will always increase. Even if the current capital gains tax is 15% (capital gains tax is the levy you pay the government on your investment gains if you hold them for a year), they may not always be that low.
And if you are saving for retirement, all of the other taxes you pay will need to be accounted for when you draw from those investments. Few people do and when they discover that not only taxes on deferred investments are levied against withdrawals but pensions and Social Security as well, they are shocked.
Controlling Risk
Only risk can be controlled but only so much. Risk is the chance that your investment dollar might lose value. It is the standard disclaimer that must be mentioned anytime you invest money. But the opportunities, managed wisely will result in incredible gains.
Consider the following chart below: 
Without any risk, and without factoring in the effect of inflation, $10,000 stuffed in a cookie jar will be worth $10,000 twenty years from now. In other words, if you take no risk, your money will not change in value. You won't have any additional taxes on it because, it is safe to assume, that they were already paid when you earned it.
Time and Investing But if you take that money, and for the sake of round numbers we will use the one time lump sum investment of $10,000 and it compounded giving you an 8% return over that same twenty years, you money will grow to more than $46,000.
That money will grow less, where the appetite for risk is smaller and more, where the investor is willing to take more chances. Once again, risk can work both ways so some caution is needed. The real magic lies with the amount of time you have to invest.
Historically, the longer you invest, the greater your chances are you will ride out any market downturns and eventually profit. So to net the greatest profit, you will need to control risk over time.
The Right Age So at what age do you assume the greatest risk? The younger you are when you start, the better your chances are you will receive the best overall benefit from time and the miracle of compounding.
Problem is, when you are in your twenties, the here and now holds the greatest sway over your spending and investment decisions. Bills from apartments, cars, and college all fight with weekends, entertainment and the high cost of the mating dance for priority. If you are twenty and you can find a way to set aside 5% of your pre-tax income in an employers 401(k) that amount should not have any effect on your take-home pay by the way, you will benefit more than you ever can imagine. Wait to Invest Just Five Years... If you invest $200 in a tax deferred account beginning at age 25, the growth of that money, accounting for a medium risk investment return of 8%, will astound even the few Gen Y'ers who say, "they can't afford to invest". If you begin at age 25, you can amass $711,268 on $96,200 in contributions Key to building that sort of nest egg after forty years of work does not mean that you have to assume enormous risk in dangerous investments. Instead, it is how you allocate those investment dollars that makes all the difference.
Additional Reading
Retirement Planning
Retiring with a Plan
| 
