It's one of life's many ironies: the best time to start saving for retirement is when you're young. But most young adults believe they lack the necessary funds for investing. After all, they're already juggling student loans, credit cards and saving for a house. Retirement is one concern they'd rather put off.

However, procrastinating may be costly. Due to a principle known as the compounding of interest, which is when money earns interest, starting a retirement account in your 20s may be extremely rewarding. That's simply because money has more time to grow before it's tapped for retirement.

How to find money for investing
"Finding money for retirement takes careful budgeting," says an Investment Executive with Fifth Third Securities. "Many times, myself included, we go through hundreds of dollars and have no idea where we spent it," he says.

To obtain money for investing, he recommends recording every dollar you spend for about a month. "When you see on paper how much you're spending on things like entertainment, going out to eat and the latest technology gadget, you're usually able to find new ways to save."

However, before investing in a retirement account, an Investment Executive with Fifth Third Securities recommends two preliminary steps: Pay off most of your high-interest debt, and build a financial cushion by saving about three months' worth of income (six months' worth if you have family responsibilities).

"Investing is for the long term," he explains. "It's money that goes into a completely different account that you don't want to touch."

How to establish a retirement account
Beginning with your first full-time job, it's important to take advantage of your company's retirement benefits. Most commonly, your employer may offer a 401(k) plan or 403(b) plan. If your employer offers a company match, an Investment Executive with Fifth Third Securities recommends contributing the full amount your company matches. "A match is like earning free money," he explains, "and you don't want to leave that behind. If you can invest more, that's obviously better."

If you need to choose between getting that matching benefit or paying off high-interest debt, an Investment Executive with Fifth Third Securities recommends taking that match - "as long as you're still able to continue paying off your debt."

If your company doesn't offer retirement plans, an Investment Executive with Fifth Third Securities suggests setting up an IRA, either a Traditional or Roth. "The benefit of the Roth over a Traditional IRA is tax-free growth," he explains. But to qualify for tax-free withdrawls, generally your Roth must meet the 5-year age rule, and your withdrawal must be for a certain reason, such as reaching age 59 ½.* Assuming you meet the eligibility requirements, in 2007 you're allowed to invest up to $4,000 a year in a Roth IRA. The contribution limit increases to $5,000 in 2008, and anyone age 50 and older can make an additional $1,000 catch-up contribution each year.

You can set up Roth and Traditional IRAs by meeting with an investment professional. Contributions can be deducted automatically each month from savings or checking accounts. You can often begin with as little as $100 a month.

While IRAs are a good idea for many investors, some prefer traditional brokerage accounts. While these lack the tax benefits of IRAs, investors can access their money at any time without penalty. When investors have smaller amounts to invest in brokerage accounts, an Investment Executive with Fifth Third Securities recommends mutual funds for their diversification.

Compounding interest creates a snowball effect
To gain greater insight into the power of compound interest, consider the following scenarios, which are hypothetical examples designed to illustrate the impact compounding can have. The example is not representative of any investment class or specific security. Actual returns and principal values will vary. At age 25, Person A begins investing $2,000 a year and earns 8% interest annually. By age 65, her $80,000 investment would grow to about $560,000.

Person B, on the other hand, waits 10 years to get started (at age 35), investing $2,000 a year and earning 8% interest annually. By age 65, his $60,000 investment grows to about $245,000. In other words, when $20,000 can remain invested 10 years longer, the difference can be an additional $315,000!

Other important considerations
Asset allocation is also important. "We find that many young people aren't allocated properly - they're too conservative." While no one wants to lose money, an Investment Executive with Fifth Third Securities says it's important that young people invest aggressively by having most of their retirement investments in stocks. He adds that an investment professional has access to mutual funds that are structured from aggressive to conservative, based on the number of years until retirement. Please note that asset allocation does not assure or guarantee better performance and cannot eliminate the risk of investment loss.

"We used to think of retirement as the final years of a person's life. But today, many people are living nearly a third of their life in retirement. It's very important to invest responsibly - you don't want to outlive your money," says an Investment Executive with Fifth Third Securities. To find out how much you're likely to need, he recommends you click here to access retirement calculators on the Fifth Third website.

For more advice on how to save for retirement or find an investment professional, contact Fifth Third Securities at (513) 534-8761 or visit the Fifth Third website.

* Refer to a tax professional to determine eligibility for contributions and distributions from IRAs, or refer to IRS Publication 590 for more information.

Fifth Third Securities is the trade name used by Fifth Third Securities, Inc., member FINRA/SIPC, a registered broker-dealer and registered investment advisor. Securities and investments offered through Fifth Third Securities, Inc.:

Insurance products made available through Fifth Third Insurance Agency, Inc.