Warren Buffett is one of the best investors and richest people in the world. He's also still actively working as CEO of Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK.B), despite being 86 years old. It's that last fact -- that he's still working at age 86 -- that provides the Warren Buffett trick that can make you millions of dollars. You see, when you invest, your money compounds on your behalf, and the longer you're able to let it compound, the faster it can grow in absolute terms.
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Once you retire and start drawing money out of your investments, your portfolio needs to reflect that new phase in your life to give yourself a reasonable chance of seeing your money last. That reduces the rate at which your investments can compound on your behalf. If, like Warren Buffett, you keep working well past a traditional retirement age, your money can compound for a couple of extra decades, and that can literally mean millions to your net worth.
How many million is two-plus decades' worth?
The following chart shows just how huge a difference that extra time can make. It shows what would happen if you invest $500 per month starting at age 25 and earn around 8% per year, which is slightly less than how the stock market has performed over the long haul.
Chart by the author.
That $500 per month starting at age 25 could make you a millionaire by age 59 and could be worth more than $1.7 million by a traditional retirement age of 65. But look at how incredibly the compounding kicks in after age 65. By the time you hit Buffett's age of 86, your nest egg would be worth more than $9.6 million. That's almost $8 million more than you would have wound up with had you retired at the traditional retirement age of 65, thanks to the power of continued compounding.
RELATED: Take a look at Warren Buffett through the years:
Warren Buffett through the years
Warren Buffett through the years
Investor Warren Buffett answers reporters' questions during a press conference to announce that Walt Disney will buy Capital Cities/ABC July 31.
Billionaire investor Warren Buffett of Omaha makes a rare public appearance during an autograph session outside Borsheim's Jewelry Store in Omaha, May 4. Buffett was signing autographs for shareholders in his company, Berkshire Hathaway, which is having its annual meeting May 5.
Billionaire businessman Warren Buffett sits with his wife Susan (R) and daughter Susie, prior to the annual Berkshire Hathaway shareholders meeting in Omaha, May 5. This marks a rare public appearance for the reclusive Buffett.
Arnold Schwarzenegger, Republican candidate for governor of California
in the October 7, 2003 recall election listens as world famous
investor, Warren Buffett (L), one of his financial advisors, speaks to
reporters after a meeting of Schwarzenegger's Economic Recovery Council
in Los Angeles August 20, 2003. REUTERS/Fred Prouser
Billionaire financier Warren Buffett looks on after a meeting with U.S. Senator Arlen Specter (R-PA) and chairman of the Senate Judiciary Committee, at the Hart Senate Office Building on Capitol Hill in Washington June 29, 2005. Specter is the co-author of a bill seeking to create a $140 billion asbestos compensation fund. REUTERS/Shaun Heasley SH/TC
Billionaire Warren Buffett arrives at the Sun Valley Resort in Sun Valley, Idaho July 10, 2007. The world's biggest media chiefs gather this week at the 25th annual Allen & Co. conference at the resort starting today. REUTERS/Rick Wilking (UNITED STATES)
Warren Buffett, chairman and CEO of Berkshire Hathaway, speaks at a Senate Finance Committee hearing about "Federal Estate Tax: Uncertainty in Planning Under the Current Law" on Capitol Hill in Washington, November 14, 2007. Billionaire Buffett warned of widening U.S. income disparity and endorsed the estate tax as a check on wealth accumulation, while two senior lawmakers said they want the tax repealed. REUTERS/Jason Reed (UNITED STATES)
Billionaire financier and Berkshire Hathaway Chief Executive Warren Buffett greets shareholders during the Berkshire Hathaway Annual Shareholders meeting in Omaha, Nebraska May 3, 2008. REUTERS/Carlos Barria (UNITED STATES)
Billionaire investor Warren Buffett laughs as he appears with Microsoft Corporation founder Bill Gates for a town hall style meeting with business students broadcast by financial television network CNBC at Columbia University in New York, November 12, 2009. REUTERS/Mike Segar (UNITED STATES BUSINESS)
Berkshire Hathaway Chairman Warren Buffett kisses his ukulele at the Berkshire Hathaway annual meeting in Omaha May 1, 2010. Buffett played "I've Been Working on the Railroad." REUTERS/Rick Wilking (UNITED STATES - Tags: BUSINESS TRANSPORT)
Billionaire financier and Berkshire Hathaway Chief Executive Warren Buffett (L) and Microsoft founder Bill Gates gesture at the national launch ceremony for the BYD M6 vehicle in Beijing September 29, 2010. Chinese battery and car maker BYD, backed by Buffett, launched its first premium multi-purpose vehicle (MPV) in Beijing on Wednesday to tap rising demand in the world's biggest auto market. REUTERS/Jason Lee (CHINA - Tags: TRANSPORT BUSINESS)
Billionaire Warren Buffett, wearing a traditional tikka or a red mark on the forehead, speaks during a news conference in Bangalore March 22, 2011. Buffett on Tuesday said he is looking to invest in large countries like India, China and Brazil, but added that restrictions on foreign ownership in India's insurance industry could be a deterrent. Buffett also said and the U.S. economy was improving and that the devastating earthquake in Japan would not hurt global growth. REUTERS/Stringer (INDIA - Tags: BUSINESS)
Berkshire Hathaway Chairman Warren Buffett tours the floor of the New York Stock Exchange September 30, 2011. REUTERS/Brendan McDermid (UNITED STATES - Tags: BUSINESS)
Berkshire Hathaway chairman Warren Buffett holds his hand over his heart during the singing of the national anthem, at the start of a 5km race sponsored by Brooks Sports Inc., a Berkshire-owned company, in Omaha May 5, 2013, a day after the company's annual meeting. Buffett at the meeting on May 4, 2013 gave the most extensive comments to date about the future of Berkshire Hathaway Inc after he is gone, saying he still expects the conglomerate to be a partner of choice for distressed companies. REUTERS/Rick Wilking (UNITED STATES - Tags: BUSINESS SPORT ATHLETICS)
Warren Buffett, Chairman of the Board and CEO of Berkshire Hathaway, poses for a portrait in New York October 22, 2013. REUTERS/Carlo Allegri (UNITED STATES - Tags: BUSINESS)
Roberta Buffett Elliott sits with her brother Warren Buffett as they attend an announcement ceremony at Northwestern University in Evanston, Illinois, January 28, 2015. The sister of financial investor Warren Buffett has given Northwestern University more than $100 million to create the Roberta Buffett Institute for Global Studies, the largest single gift in the school's 164-year history, the university said on Wednesday. REUTERS/Jim Young (UNITED STATES - Tags: BUSINESS EDUCATION SOCIETY)
Warren Buffett, chairman and CEO of Berkshire Hathaway, speaks at the Fortune's Most Powerful Women's Summit in Washington October 13, 2015. REUTERS/Kevin Lamarque/File Photo
Warren Buffett, chairman and CEO of Berkshire Hathaway, smiles before speaking with Bill Gates (not pictured), at Columbia University in New York, U.S., January 27, 2017. REUTERS/Shannon Stapleton
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While there are no guarantees in the market, the power of compounding simply works that much more powerfully the more time you give it to work, for any positive rate of return. And that's a tool you can put to use for yourself regardless of where you are on your saving, investment, and career curves.
How you can put that power to work for you
If you're on track or ahead of schedule for your retirement savings based on that chart, the power of compounding can help you improve your retirement by letting it work for you for a few more years. As a millionaire before 60 and a multimillionaire before age 70, you've got options available to you that your less prepared peers and coworkers simply don't.
If, on the other hand, you're a bit behind that compounding curve, you can still put it to use for you. If you save a bit more, you can put more "oomph" behind your investments to help speed up the process of building your nest egg to the point where compounding can really kick in for you. Alternatively, if you're willing and able to work, save, and invest a bit longer, you can still reach the point where your nest egg is able to cover your costs for you.
After all, the power behind this particular Buffett trick doesn't come from his superior investing acumen or the tax advantages he gets from being able to invest on behalf of an insurance company. It comes from his willingness to keep working well past a traditional retirement age and the ability to stay heavily invested in equities when you don't need your portfolio to cover your costs of living. If you're willing and able to keep working, this is a door that remains open to you, too.
The key to compounding is to get started now
Regardless of what your current financial position looks like, the power of compounding really only kicks into high gear when you give it enough time to work its magic on your behalf. So get started now, and give yourself the most time possible to let compounding work for you. As that chart above shows, when it really kicks into gear, it can mean millions of dollars to your net worth.