When it comes to saving for retirement, there’s an alarming trend where Americans are choosing to delay it later and later into their careers.
According to an article from CNBC, only 39% began saving in their 20s while 25 and 15 percent waited until their 30s and 40s respectively. If that’s not bad enough, they also point out that at least half of adults between ages 18 and 34 are not saving for retirement at all.
That’s really too bad because these people don’t realize just how much money they’re missing out on. I started saving in my 20s, and by the time I was in my 30s, I couldn’t believe how quickly my investments had grown.
Like I always tell people: Your retirement plans (like your 401k and IRA) are some of the best deals around when it comes to building your wealth.
If you don’t think so, then here are some of my top reasons why everyone should start saving for money beginning right now and how it can change your life for the better.
The Sooner You Start, The More Money You’ll Have
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.
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.
It Will Be Less Painful Than Waiting
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.
You’ll Be Able to Retire Sooner
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. Here are a few examples.)
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.
Because No One Is Coming to Save You
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
The Bottom Line
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.
The best thing you can do is take control of your finances, make a plan, and start contributing to your plans starting right now.
I highly encourage you to try out the calculator we mentioned above and get a feel for the numbers you should be hitting. Commit yourself to start saving, and consistently increase your contributions with every chance you get.
Trust me, your future self will thank you!
Contributor’s opinions are their own. Always do your own due diligence before investing.