5 Crucial Reasons To Start Saving For Retirement Early

When it comes to saving for retirement, there’s an alarming trend where Americans – unaware of the reasons to start saving for retirement early – are choosing to delay it later into their careers.

At least half of adults between ages 18 and 34 are not saving for retirement at all.

And that’s really concerning because by postponing saving for retirement, they are jeopardizing their future financial security. 

Unline many of my friends and colleagues, I started saving and investing for retirement in my 20s.

By the time I was in my 30s, I couldn’t believe how much my investments had grown. So allow me to explain to you why you should start saving for retirement early.

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5 Crucial Reasons To Start Saving For Retirement Early

When you're in your 20s and 30s, retirement seems a lifetime away. Perhaps this is one of the biggest reasons many young people fail to save for retirement when they’re young and in their best working years.

Failure to relate to the older version of ourselves makes us less inclined to want to support that person in the future.  

So take a step back and think through the tough questions:

• What kind of lifestyle do I want to have in retirement?
• Do I want to be forced to work during my golden years?
• What do I want my financial legacy to be?
• Do I want to retire at the traditional age or look to retire early?

Taking a few moments to think about your wishes for retirement will help you frame the picture of what you want those years to look like.

More important, it will also force you to consider what you need to do today to get there.

If you are still not convinced, then here are some of the top reasons to start saving for retirement early.

1. The Sooner, The Better

One of the biggest challenges I see from my friends and coworkers is how much money they have to save each year in order to hit their retirement goals.

Unfortunately, what they didn’t realize is that if they had started saving earlier in life as opposed to waiting until their 30s and 40s, then they wouldn’t have to save so much.

Here’s a simple example.

Suppose you wanted to build a nest egg of $1,000,000 and retire by the time you’re age 60. If we assume your investments will earn an average 10% return per year, then:

• Starting at age 25, you’d need to contribute $142 per paycheck. 
• Starting at age 35, you’d need to contribute $391 per paycheck. 
• Starting at age 45, you’d need to contribute $1,211 per paycheck. 

Notice how the number you need to save just gets more painful the longer you wait?

At age 25, you’d barely notice $142 missing from your paycheck. But at age 45, $1,211 per paycheck would be huge! 

Plain and simple – the sooner you start, the less of a burden saving for retirement will be, and the more money you can enjoy here in the present.

2. Benefiting From Compound Interest

One of the greatest benefits of saving for retirement as early as possible is because it puts you in a position to earn the greatest amount of money possible.

How? Because of a phenomenon called compound interest. 

Compound interest is the money that grows on top of the money you invested plus all other previous earnings.

So the more you contribute and the longer you give compound interest to grow, the bigger your nest egg will be when you retire someday.

It's seriously ridiculous how much of a difference something as small as just 10 years can make.

For example, let’s say you want to retire by age 60. You start putting away $1,000 per month and earn an average 10% return on your investments. If you had started at:

• Age 25 (35 years of saving), you’d have $3,252,292
• Age 35 (25 years of saving), you’d have $1,180,165

Wow! That’s so much more!

But how is that possible? It’s because of the way that compound interest works. With each passing year, it builds in greater increments.

That’s why the sooner you start, the more years you’ve got to work with, and the more money you could potentially have by the time you get to the retirement finish line.

Try your own numbers for yourself using this free online compound interest calculator. You’ll be amazed at what you learn.

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3. Being Able To Retire Earlier

Another great option that you automatically build into your retirement plan the earlier you start saving is that you’ll have what I like to call “life options”. 

What do I mean by this? For starters, you might not have to wait until age 60 to call it quits like everyone else.

You might be able to do it when you’re 50, 40, or even 30. Yes, there are lots of examples of people who have made retiring by age 30 a reality.

I know when I was in my 20s, I wasn’t necessarily thinking about retirement. But after just a decade of work, I was beginning to think about how my life could be different if I could achieve financial freedom.

Maybe I could get involved in different activities or simply spend more time with the people I love.

You might have your own reasons for wanting to separate from your employer sooner rather than later.

But if you really want this option to be available, then you’re going to need to start preparing for it now.

Start contributing as much as you can as early as you can so that your investments can compound and build with every passing year.

4. Financially Securing Yourself

I remember the first time I started asking questions about retirement, my coworkers laughed.

A lot of them assumed they would receive some sort of pension when they were older, or that Social Security would take care of them. But neither of those things are true.

Pensions are, unfortunately, a thing of the past. Back in your grandparents’ days, a pension was how the company you served for 30 years or so would take care of you.

But in modern times less than 16 percent of companies offer pensions to their new hires.

So unless your employer has specifically told you that you’re entitled to one, there’s most likely no pension waiting for you when you retire.

Social Security is still a thing and probably will continue until most of us are into our golden years.

However, the program is currently heavily underfunded and frequently releases reports that they will only be able to pay out approximately $0.79 for every dollar of benefit you’re entitled to receive.

Furthermore, Social Security was never designed to be an income replacement.

It was meant to be “just enough” so that you don’t end up penniless in old age (like how many Americans were during the Great Depression).

That means you’re going to have to do your part if you want to have enough money to enjoy your standard of living.

5. Unburdening Your Mental Health

One of the biggest reasons I wanted to get myself in a better financial position is for my mental health. So much stress is brought on by poor planning and failure to save money. 

There were a handful of times in my early 20s when I remember digging through canned food in the back of the pantry because I didn't have any money to go out for food.

Also, I can remember many sleepless nights where my mind raced with anxiety over how I was going to pay for the parking ticket I had just got because my credit card was maxed out, and I didn’t get paid for another week.

Creating a retirement plan early grants you the security and stability of not having to fret over minor fluctuations in income or spending.

Developing a strategy and sticking to it will give you peace of mind and a lifetime of lower stress.

Start Saving For Retirement Early – Final Thoughts

Looking at all these reasons to start saving for retirement early makes you realize you are the only person you can rely on to be prepared for retirement.

If you’re not saving, then there will be nothing waiting for you at the end of your working years. And you don’t want to find yourself in that unfortunate situation.

The best thing you can do is take control of your finances, make a retirement plan, and start contributing to your plans starting right now.

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