Part 3/6:
The cornerstone of this strategy lies in compound interest, often referred to as the "eighth wonder of the world." For the sake of illustration, the example assumes that the $500 is invested into a Roth IRA, a tax-advantaged retirement account in the U.S. Given the average annual return of around 9% based on the S&P 500 index, the potential growth over 20 years can be substantial.
Calculating the future value using these assumptions demonstrates that a consistent monthly contribution can result in about $336,000 by the time an individual turns 60. This amount is significant as it serves as a robust supplement to Social Security benefits, if applicable.