When is the best time to plan for retirement? The best answer is right now.

It might be difficult to believe that you have time to plan for retirement at this point in your life. If you are graduating from college and starting your first job, saving is likely the last thing on your mind.

If you’ve been working for a while, have a family to take care of, or own a home, then there seems to be no way that you can save enough money. The best bet would seem to be putting your head down and work day and night until you can retire.

This attitude, though, could cost you dearly when it comes time to finally retire from the rat race. One should not wait until they get closer to retirement age before thinking about their financial future. In fact, the sooner you start planning for retirement, the more comfortable your retirement will be.

Time Is Your Friend

Retirement planning should begin as early as 20 to 30 years old-or as soon as you start earning money. For one, you cannot depend on your social security or pension to cover your needs when you’re already old unless you’re willing to make your budget ultra-skinny, focusing only on the essentials.

Another factor is time. It is one of the biggest factors in determining how much money you will need to save for retirement and how long it will take you to reach this goal. The longer your money has to grow daily, the better off you are. With time, you can also take advantage of the “magic” of compound interest.

What Is Compound Interest?

Compound interest can be defined as interest calculated based on the initial capital and the accrued interest over the years. In other words, you earn interest not only on your original investment but also on all the accrued interests.

Let’s do some math here for a proper illustration. Let’s pretend that Juan earns regular simple interest from his deposit. He invests 100 pesos for 3 years and earns 6 percent simple annual interest per year. At the end of each year, he collects his money plus his earned interest, which equals 106 pesos at the end of year 1, 113.46 pesos after year 2, and 121.12 pesos after year 3. In three years, his total earnings would have reached 321.58 pesos.

But what happens if his money grows through compounding interest? Juan’s investment would earn over 320 percent because his initial 100 pesos would be earning money from itself (i.e., incrementally), and he’d be collecting a return on the growing principal as well as accrued interests, not just on the interest.

In the first year, Juan could earn 140.42 pesos and then 168.57 pesos in the second year. By the third year, his investment income could be 197.72 pesos. Within the same period, he could pocket 506.71-a huge improvement than when he opts for simple interest.

Beating Inflation

Earning huge money over time isn’t the only benefit of compound interest. It can also help your investment to beat inflation.

What is inflation? It is a general increase in prices with respect to a given currency. This definition applies both to the inflation of consumer goods and services and the price increases that one observes in financial markets.

The bottom line is that the value of your currency decreases over time, which also drives your consumer spending down. Just think about how much your thousand pesos could have bought in the 1980s compared to what you can purchase today. Definitely, your shopping cart could have been full if you can travel back in time.

How can compound interest help? It might not all the time. It depends on the macro conditions of the economy. However, usually, it can support investment portfolios like mutual funds against the effects of inflation by providing you with higher returns in the future. The growth of your investment can be higher than the inflation rate.

In other words, compound interest can help ensure that you will have money to carry on with your lifestyle today, even during retirement.

Investing today comes with an opportunity cost. You forego the opportunity to spend earnings that would otherwise be available. That could be a newer car, a better house, or a trip to Japan.

On the other hand, the average lifespan is around 71 years old, according to Statista. Unless you get seriously sick or die early, you will eventually retire, which then makes early investing a more sensible choice today.