The Most Important IRA Chart You’ll Ever See

You may be surprised at what an IRA could do for your retirement.

There are plenty of IRA facts I could share with you that could help make the case why you should be using one. However, the most compelling reason to invest in an IRA is for the power of tax-deferred compound returns. Here’s a discussion about why you should use an IRA to save for your retirement, and a chart that really shows the true potential of compound returns.

Why invest in an IRA?

An individual retirement account, or IRA, can be a great way to save for retirement, and could even save you money on your taxes this year.

IRAs come in two main varieties — traditional and Roth, and the main difference is the tax advantages. Traditional IRA contributions may be tax-deductible in the year they’re made, but eventual withdrawals in retirement will be taxable income. On the other hand, Roth IRA contributions aren’t deductible, but any qualified withdrawals will be 100% tax-free. Of course, there’s a little more to know about IRAs than I can explain in a paragraph, so here’s an in-depth look to help you choose.

As of the 2016 tax year, you can contribute up to $5,500 to an IRA, and an additional $1,000 if you’re over 50. If you have more than one IRA (such as a traditional and a Roth), your combined contributions cannot exceed these limits.

Even if you participate in a 401(k) or similar retirement plan at work, there are still some pretty compelling reasons to use an IRA. First of all, your 401(k) might not be enough, especially if you just contribute enough to get your employer’s match. You may be surprised how much you’ll need to save for a truly comfortable retirement — even your 401(k) combined with Social Security might not provide sufficient income.

Next, there are some different rules about using IRA contributions before retirement age. For example, you can withdraw up to $10,000 penalty-free at any time to help pay for your first home, or any amount to help cover college expenses. Neither of these early withdrawals are permitted in a 401(k).

Finally, and perhaps most important, an IRA gives you more control over your retirement assets — you can choose to invest in any stocks, bonds, or funds that you want. If you prefer to take a passive approach to investing, you can shop around for funds with lower fees than those in your 401(k). Or, if you want to pursue your own diversified stock portfolio, you’re free to do that as well.

The most important IRA chart you’ll ever see

Now, I’m a big advocate of buying individual stocks, as long as you have the time and desire to do it right. Having said that, to illustrate the amazing power of an IRA, let’s look at a simpler example.

Warren Buffett has said many times that the best investment for most people is a low-cost S&P 500 index fund, and the Vanguard 500 Index Fund ETF (NYSEMKT:VOO) is a good one with a rock-bottom 0.05% expense ratio. Using this fund, which simply matches the market’s performance, you may be surprised at how your investments can build over time.

Over the past 25 years, the S&P 500 has produced an annualized total return of about 9.4%. Assuming you contribute the maximum of $5,500 each year and your investment continues to grow at this rate, take a look at how your money could grow over time:

Important Ira Chart


After 20 years, your contributions could produce an account value of more than $294,000. In 30 years, the power of compound returns could make your account swell to over $800,000, and in 35 years, you could be sitting on a $1.3 million nest egg. If you allowed your account to grow for even longer, well… you get the idea.

In other words, you could potentially start contributing to an IRA at age 30 and retire at 65 with $1.3 million. Using the conservative 4% rule of retirement, this translates to annual income of $52,000. This is in addition to your Social Security benefits and any income from a 401(k) or pension.

Of course, this is a simplification. In reality, this wouldn’t be a smooth curve — rather, there will almost certainly be ups and downs along the way. And, the maximum contribution of $5,500 will increase over time with inflation. However, the idea still applies.

The bottom line on IRAs

The point here is that an IRA is an amazing wealth-generating machine. The fact that by simply using the market’s actual historic returns and contributions of $5,500 per year (about $460 per month) could allow you to retire as a millionaire just goes to show the importance of investing, and of starting as early as possible.

The $15,834 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $15,834 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after.  Simply click here to discover how to learn more about these strategies.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Forget Netflix! We Think These 3 Companies Are Ready to Take Off

Let’s face it… cable television is on its way out and the “death of TV” means the $2.2 trillion entertainment industry is ripe for the picking. Right now, there’s a golden opportunity to hijack cable’s profits as Americans continue ditching cable. Because we think three stocks are poised to surge now that cable TV’s days are numbered. And you’d be surprised… Netflix and Amazon.com aren’t even on the list! Click here to learn more.

You May Also Like
An Unknown Side of Cancun: Enjoy a Luxurious Stay at the JW Marriott Resort and Spa and Bring Your Taste for Adventure

Treat yourself to luxury, relaxation and unforgettable experiences at this fantastic resort.

Read More
Steiger Facial Plastic Surgery Offers Pamper Mom Facial Special

The offering is available through May 31.

Read More
NAIOP South Florida Appoints Officers, Executive Board and Board of Directors for 2022

NAIOP South Florida, a Commercial Real Estate Development Association offering advocacy, education and business opportunities to its members, has announced the following officers for the 2022 Board of Directors: President:

Read More
Pride Week Festival Begins With Tribute to Pulse Nightclub Survivor

Miami Beach Pride’s week-long festivities will commence with a special tribute to the LGBTQ+ community honoring the victims of the tragic shooting at Pulse Nightclub in Orlando. A ceremonial “flip

Read More
Other Posts
Surfside luxury condo sees notable sales

Arte at Surfside is making waves. There’s, of course, the news that Ivanka Trump and Jared Kushner are renting at the 16-resident luxury condominium. And there’s the December penthouse sale

Read More
Up in the Air: A Discussion

In a dynamic region where residents are typically on the move, everyone is wondering about the health of the airline industry and the safety of airports and airplanes. Everyone is

Read More
South Florida Yachting Legend Passes

Robert “Bob” Roscioli, an icon in the South Florida marine industry, has passed away. Many recognize the name Roscioli from the widely-successful and world-renowned Roscioli Yachting Center, a full service

Read More
Four key steps

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] What a crazy time we are all experiencing. Right now, getting back to basics is most important. It is not and

Read More

Drew Limsky

Drew Limsky



Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.