Millions of Americans could be falling short of their retirement savings goals by not taking advantage of a powerful phenomenon. 

It is a force, which some call magic, that can turbocharge your cash and help propel you closer to achieving millionaire status in retirement. 

The phenomenon is compound interest. 

Put in the simplest terms possible, compound interest is the interest you earn on interest.  

For example, if you invest $100 and it earns 10 percent interest each year, you will have $110 at the end of the first year. 

This larger sum will then itself earn 10 percent interest, taking your total to $121 at the end of the second year.

Over time, this growth will continue to snowball as you earn interest on an ever-larger account balance.

But the key is taking advantage of this force as soon as you can, experts urge. 

Even if you are only starting with $250, that small amount will eventually start to grow

According to Georgia Lord, a financial planner at Corbett Road Wealth Management, it is important for Americans to start investing as early as they can, no matter the amount of money they have saved up.

By starting to invest early, individuals can take advantage of compound interest and have their money work for them over a longer period of time. Lord emphasizes that the key is not the initial amount invested, but rather the length of time that money has to grow.

‘The biggest issue when it comes to compounding is the idea that people think they don’t have enough money to start or enough to invest,’ she told the Daily Mail.

‘It’s something I see with a lot of my younger clients. People think they need $10,000, $50,000 or $100,000 before they can even start investing.’

She said that even if you are only starting with a couple hundred dollars you are getting into the habit of saving and investing – and a small amount will eventually start to grow. 

For example, say you invest $250 with an 8 percent annual return. 

Every month, you invest an additional $250 in the account. Over 43 years, compounding will work its magic and you will have savings of over $1 million.

In the first two decades, however, it will only grow to $143,415.

This is because compound interest makes time work in your favor – the more time you give it, the more the funds will snowball.

Kim Calder, 63, has been working and saving for retirement since she was 22. 

The certified public accountant, who lives in the suburbs of Washington D.C., has saved up a staggering $4 million in retirement savings. 

‘It’s really being consistent,’ she told the Daily Mail. ‘Start young and be consistent. There’s that old adage of it’s time in the market, not timing the market.’ 

Compound interest makes time work in your favor, said financial planner Georgia Lord

Kim Calder is a 401(K) multi-millionaire with almost $4 million in retirement savings

While making recurring contributions will make your money grow faster, the force of compounding is not reliant on putting extra money in, Lord noted. 

Sometimes the figures can seem to good to be true, but she recommends using a compound interest calculator to see how much you could save for retirement. 

To quickly calculate how much an investment could grow, many investment advisors also recommend using the rule of 72, Adam Scott, a certified financial planner, told the Daily Mail. 

The rule of 72 is a simplified formula that calculates how long it will take for an investment to double in value, based on its rate of return. 

‘It is a magic number. So if you have an 8 percent interest rate, and you divide 72 by eight, that means your investment is going to double in nine years.’

But Scott, who is the founder and principal of WellAcre Global Wealth Advisors, warned that there are some other factors savers should take into consideration when it comes to growing their funds. 

‘People may say that the stock market makes a 10 percent return before inflation and 8 percent when adjusted for inflation. 

‘But the stock market goes up and down and it’s actually quite difficult to get a compounded annual growth rate of 8 percent. 

‘You’ve really got to be invested for, say, 30 years and not touch it, then maybe you will get that magic 8 percent compounding.’

You have also got to take into account taxes, which are going to be taken out unless you are invested in a retirement account. 

That is why you really want to be investing in retirement accounts to minimize the taxes you have to pay on your savings, he said. 

If you are invested in a Roth IRA or 401(K) you are not going to be paying tax on the growth of your funds because you invest money that has already been taxed. Plus, you will not be paying tax when you take the money out. 

And with a traditional 401(K) or IRA, you get an income tax deduction for putting money into your account. 

You can also split your investments and put money both in Roth and traditional accounts, which Scott says he often advises his younger clients to do.  

‘Either way, you really need to invest in some kind of tax-favored account,’ he said, ‘and you absolutely have to have exposure to stocks and shares.’

Adam Scott, founder and principal of WellAcre Global Wealth Advisors, warns that there are factors that savers should take into consideration when it comes to growing their funds

Compound interest makes time work in your favor – the more time you give it, the more the funds will snowball

Scott emphasized how important it is to have a diversified portfolio in order to make the most out of long-term growth and compounding.

While the stock market has been volatile recently, bonds are offering much higher interest rates than they were 10 years ago, said Scott. 

‘A decade ago, the interest rate on bonds was 1 or 2 percent, or even close to 0 percent at times. And that meant you were going to make zero over the next decade if you bought a 10-year bond.’

With bonds now you can get almost a guaranteed return of 4 to 6 percent over the next 10 years.

The US stock market, meanwhile, could have a moment like it had from 2000 to 2011 where it went up and down a lot, he added.

‘It was so dispiriting to see my account lose money year after year. But it’s so important to invest even when it’s painful like that.’

If the US market struggles for the next 10 years, as happened in the early 2000s, it is crucial to have a diversified portfolio. 

‘A diversified portfolio made money over that decade. But if you had just been in the S&P 500, like a lot of young people are today, you lost money. 

‘Diversification is the best route,’ he said.