There is a piece of arithmetic that gets quoted constantly and understood rarely, so here it is run out rather than gestured at.

Two people. Both earn a 7% average annual return, compounded monthly, which is roughly the long-run number people use for a stock-heavy portfolio and is a projection rather than a promise.

Person A saves $500 a month from age 25 to age 35. Ten years, $60,000 contributed. Then they stop entirely and never add another dollar, leaving it alone until 65.

Person B saves nothing until 35, then saves $500 a month from 35 to 65. Thirty years, $180,000 contributed.

At 65:

Person A contributed a third as much money and ended up ninety thousand dollars ahead.

That is the whole argument for starting early, and it is not a motivational metaphor. It is what exponential growth does when you give it forty years instead of thirty.

Why it works #

Compounding is not linear, and human intuition about it is bad in a specific way: we systematically underestimate the back end.

At roughly 7%, money doubles about every ten years. So a dollar invested at 25 becomes about fifteen dollars by 65. A dollar at 35 becomes about eight. A dollar at 45 becomes about four.

Every decade you wait roughly halves the final value of that dollar. A thousand dollars you invest today is worth fifteen thousand future dollars if you are 25, and four thousand if you are 45. Same thousand dollars.

The corollary people miss: the last ten years of growth produce the largest dollar gains of the entire period, and you only get those ten years if the money was already sitting there. You cannot buy them later at any price.

The order to actually do this in #

Compounding is the reason to start, but there is a correct sequence, and skipping steps causes real harm.

1. A small emergency buffer. One thousand dollars, or one month of expenses. Enough that a car repair or a medical bill does not go onto a credit card at 24%.

2. Capture the full employer 401(k) match. If your employer matches 50% up to 6% of salary, that is an instant 50% return on those dollars. No investment on earth competes with this, and it is the one item on this list that is genuinely free money. Skipping it means declining part of your compensation.

3. Kill high-interest debt. Credit card debt at 20 to 27% is a guaranteed negative return. Paying it off is mathematically identical to earning that rate risk-free, which nothing else offers. Do this before any investing beyond the match. The rules that keep you out of that hole in the first place are in credit card rewards without getting burned.

4. Build the emergency fund out. Three to six months of expenses in a high-yield savings account. In San Francisco, where the cost of a bad month is high and the job market is volatile, I lean toward six.

5. Max the tax-advantaged accounts. An IRA, then more 401(k) up to the limit. For 2026 the 401(k) employee contribution limit is in the neighborhood of $24,500 and the IRA limit around $7,500. These are indexed and change every year, so check IRS.gov for the current figure rather than trusting a blog post, this one included.

6. Taxable brokerage for anything beyond that. No contribution limits, no early withdrawal penalty, just ordinary tax treatment.

Most people should expect to sit somewhere in steps two through five for years. That is normal. This is a sequence, not a checklist to finish in a quarter.

What to actually put the money in #

The short version, deliberately simple, because complexity is where people lose money: a low-cost, broadly diversified index fund. A total US stock market fund, a total world fund, or a target date fund matched to your retirement year. Expense ratios under 0.10% are widely available and there is no reason to pay more.

That is the whole recommendation.

The reasoning: over long periods, the majority of actively managed funds underperform their benchmark after fees, and picking the ones that will not, in advance, is a problem nobody has reliably solved. A 1% expense ratio does not sound like much and costs roughly a quarter of your final balance over forty years, because fees compound against you exactly the way returns compound for you.

A target date fund is the best default for anyone who does not want to think about this. Global mix of stocks and bonds, rebalances itself, shifts more conservative as the target year approaches. One fund, no maintenance.

Things to avoid: individual stock picking with retirement money, anything with a sales load, anything someone describes to you as an opportunity, and cryptocurrency as a retirement plan. A small speculative position is fine if you enjoy it and can afford to lose it. It is not a strategy.

What if you cannot save $500 a month #

Then save what you can. This is the more common situation, and the “just invest five hundred a month” framing is written for a reader who may not exist.

At 7% compounded monthly, a hundred dollars a month from 25 to 65 comes out around $260,000. Fifty dollars a month is about $130,000. Neither is a retirement on its own. Both are dramatically better than zero, and both build the habit at the age when the habit is worth the most.

There are two ways to increase the number, in order of effectiveness.

Raise your income. There is no ceiling, and this is where the real leverage is. A single career move is worth more than every spending optimization you will make in a decade. Some paths are unusually good at this and unusually underpublicized, which is the subject of high-paying careers without grad school.

Cut your largest fixed costs: housing, transportation, recurring subscriptions, in that order. Rent control is worth more than every other frugality move combined. Not owning a car in San Francisco is worth around eight thousand a year. Utility and phone bills are worth about seventeen hundred. That is close to ten thousand dollars a year of savings capacity from three decisions, none of which change your daily life much.

Then automate it. Set the transfer for the day after payday and never see the money. Every study of this finds the same result: automatic beats intentional by a wide margin, because intentional competes with everything else you want that month.

Track it, because motivation decays #

The hard part of a forty year plan is that nothing visible happens for the first several years. You contribute five hundred a month for three years, you have eighteen thousand dollars, and it feels like nothing is happening. The exponential curve is nearly flat at the start, which is exactly when you most need to see where it is heading.

Seeing the projection helps more than people expect. Watching a number climb toward a target you set is a completely different experience from making an abstract monthly transfer into a void.

That is why I built Retire Goals. You set a target amount and date, log contributions against it, and it projects where you land based on your contribution rate and expected return. Mostly that means you get to see the curve bend upward around year eight, which is the year most people would otherwise quietly stop. It is free, there are no accounts, and everything stays on your device. The build write-up is here.

A spreadsheet does the same job. Anything does, as long as you actually look at it.

The one thing to take away #

You cannot buy back years. Money, income, discipline, and knowledge are all recoverable. Time in the market is the only input in this equation that is strictly non-renewable.

If you are in your twenties and you take exactly one action after reading this, make it contributing enough to capture the full employer match. It is free money, it takes about fifteen minutes to set up, and it is the highest-return financial decision available to almost anyone.

Next: how much you actually need to retire, and Roth versus traditional, which is the account-type question everyone gets stuck on.