Starting to invest after 30: what you can and cannot catch up

Starting to invest after 30: what you can and cannot catch up

Thirty is not late, but it is late enough that the arithmetic stops being theoretical. The same 500 a month a 25-year-old can set and forget produces a different number for you, and the gap is measured in hundreds of thousands rather than in rounding. The expensive mistake is to read that number and conclude that the only variable left is risk.

The arithmetic of a late start

Run it once, properly: 500 a month, 7% a year compounded monthly, contributions until 65.

• Start at 25: about 1,312,000.
• Start at 30: 900,000.
• Start at 35: 610,000.
• Start at 40: 405,000.
• Start at 45: 260,000.

Five years of delay between 25 and 30 costs roughly 412,000, while the contributions you skipped in those five years add up to 30,000. That ratio is the whole case for starting early, and it is also why a late start feels hopeless. It is not hopeless. It is more expensive per month.

Every decade of delay roughly halves the end balance. That is not a slogan, it is what the series does: 1,312,000 becomes 900,000, then 610,000, then 405,000, then 260,000. Notice what stays constant. The monthly amount does. A 45-year-old and a 25-year-old put in the same 500 with the same effort; one of them has twenty extra years of compounding sitting behind an identical decision.

Flip the question around. To reach 500,000 by 65 at the same 7%, you need 278 a month starting at 30, 410 starting at 35, 617 starting at 40 and 960 starting at 45. The target is fixed. The payment is not.

The US tax code concedes one thing to late starters: from the year you turn 50, a 401(k) accepts an extra 7,500 on top of the ordinary deferral, and there is a larger catch-up between 60 and 63. Useful, and small beside the gap that five years of delay opens. Treat it as a nudge rather than a rescue.