Here's What Happens When You Contribute $5,000 to an IRA at Age 45

By the time you reach your mid-40s, you may be in a pretty decent place financially. At that point, your kids may be old enough where you don't have to spend so much money on childcare costs. And you may have a better handle on your mortgage payments than you did when you were earning less.

In fact, a lot of people find that their earnings peak in their mid-40s. At that point, you may have 20 years of work experience or more under your belt, and that could lead to a string of promotions that amount to a very respectable wage.

But what if you're 45 years old and have yet to start socking money away in your IRA? Frankly, that's not the most optimal situation to be in. But it's also far from a hopeless one. In fact, if you contribute $5,000 to your IRA at age 45, it might help kickstart your nest egg in a very meaningful way.

Your money needs time to grow

You'll often hear that it's important to start saving for retirement at as young an age as possible. That way, your money gets more time to grow as you invest it.

But it may be that you've reached your mid-40s without getting to fund your IRA. If so, you may be eager to stick $5,000 into that account at age 45, invest it in stocks, and hope for the best.

Now you should know that over the past 50 years, the stock market has delivered an average annual 10% return before inflation , as measured by the performance of the S&P 500 index. If you invest your $5,000 at age 45 and don't touch it until age 65, you'll end up with close to $34,000.

Of course, $34,000 is not really what most people would consider a sizable nest egg. It's a lot of money in its own right, but it may not be enough to get you through all of retirement. But the good news is that if you manage to carve out $5,000 for your IRA at age 45, you might also manage to uphold that pattern for many years.

In fact, let's say you contribute $5,000 to your IRA every year between the ages of 45 and 65. Assuming that same 10% average annual return in your account, you're looking at a nest egg worth about $286,000. That's a pretty decent sum of cash to bring with you into retirement.

Try to start funding your IRA before your mid-40s

Starting to contribute to an IRA at age 45 is better than waiting even longer. But even so, at that point, you've missed out on several decades of lost investment gains. So if possible, do your best to start funding your IRA during your 20s.

You may not be able to part with $5,000 a year at that point, especially during your early or mid-20s, when you may only be earning an entry-level salary. But even if you only manage to save, say, $1,000 a year in your IRA during your 20s, it could lead to a lot of long-term wealth -- especially if you're able to gradually increase those contributions and save even more during your 30s and 40s.