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Key to retirement riches? Start early

Of all the strategies designed to secure a comfortable retirement, none is quite as effective as the simplest -- start early.

Starting early allows compound interest to do most of the work. That makes saving a substantial sum a snap. "We like to tell people that they have to get in the habit of paying themselves first," says Mark Wilson, chief investment officer at The Tarbox Group. "If you are doing that, you are automatically avoiding a lot of the behaviors that get people into trouble."

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How much of a difference can starting early make? Consider two investors, Sean and Sue. Both are new college graduates who secure jobs earning $40,000 annually at age 23.

Sean decides to set aside 15% of his income in his company's 401(k) plan, saving $500 a month, or $6,000 a year. He invests in a stock index fund, which earns an average of 10% per year. Better yet, his employer matches his contributions at a rate of 50 cents on the dollar. (Unfortunately, shallow girls refuse to date him because he drives a 2006 Toyota.)

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Sue argues that she has decades to save for retirement. She chooses to use her discretionary income to buy a new convertible.

In five years, Sean's nest egg has grown to a tidy $58,078. Sue, on the other hand, has a convertible worth $5,000, which she decides to trade in for another new convertible, since she's only 28 and has plenty of time to save.

Sean decides he doesn't like shallow girls anyway. In five more years, when both Sean and Sue are 33 years old, Sean's retirement account is worth $153,633. Sue has an incredible tan (and permanent skin damage) but realizes she needs to start saving.

Sean, on the other hand, has had enough of poverty and decides to stop making retirement contributions so he can buy a Tesla. Still, because of the saving he did in those early years, his account rocks along without him. In 32 years, when Sean reaches retirement age, his nest egg is worth an astounding $3,719,360.

Notably, all he contributed to the account was $60,000. His employer kicked in $30,000. Compound investment returns did the rest.

Sue saves for the next 32 years, kicking $6,000 annually into her account and getting a $3,000 annual employer match. When she hits retirement at age 65, she has contributed $192,000 to savings -- three times more than Sean. Her employer has kicked in $96,000. But she still has considerably less -- $2,088,844 to be precise.

And, of course, if Sean felt he could afford both the Tesla and contributions to the 401(k) plan, he'd be living really pretty -- perhaps on a Malibu cliff next to Barbara Streisand -- in his golden years. If he continued to save and earn 10% on average on his money, he'd end up with $5.8 million in his retirement account.

"If you work for somebody with a retirement plan, the best thing you can do is at least contribute enough to get the employer match," says Margie Mullen, owner of a Los Angeles financial planning firm that bears her name. "The earlier you start, the better."