Think It's Too Late to Invest for Retirement? Here's Why You're Wrong

When it comes to something as important as investing for retirement, you may be tempted to tell yourself that you'll "never" reach your goal or you'll "always" fall short. That's an all-or-nothing mentality, and unless you want it to be true, it doesn't have to be.

If you're in your 40s, 50s, or even 60s and haven't invested anything for retirement, you're right to give your situation some thought. However, if you think it's too late to do anything, you're wrong. Here's why it's never too late to invest in your future.

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Consistent contributions can make a huge difference

The magic formula always boils down to one thing -- consistent contributions. Even if you're starting out decades later than you wish you had, consistently contributing to an investment account is the surest way to build a nest egg.

Let's say you find a way to invest $200 per month ($46.15 per week for 52 weeks each year). Let's also assume your account earns an average annual return of 7%. This table shows how much it would be worth at full retirement age (FRA) of 67 and at ages 73 and 75 -- even if you never increase your monthly contributions.

Data source: Author's calculations. Chart by author.

Why 67, 73, and 75?

The table shows how much your account would be worth at ages 67, 73, and 75, because each age is significant. Around age 67, you reach FRA. At that age, the IRS doesn't yet make you take any withdrawals from any sort of tax-favored retirment account.

However, if you invest in a "pre-tax" account -- the type of plan that allows you to save for retirement using income that hasn't been taxed yet -- you must begin taking required minimum distributions (RMDs) by age 73 (or 75 if you were born in 1960 or later). Your monthly budget will help determine whether you want to wait as long as possible before making withdrawals or need to begin withdrawing money earlier.

If you invest in any of the following accounts, you have at least until age 73 (or 75) to allow your investments to grow:

• 401(k) plan
• 403(b) plan
• 457(b) plan
• Traditional IRA
• SEP IRA
• SIMPLE IRA
• Profit-sharing plan

More time to grow

If you want to avoid RMDs and give your nest egg time to grow even larger, consider a Roth IRA, Roth 401(k), Roth 403(b), or Roth 457(b). Each of these contributions is made after you've already paid taxes, so there are no taxes due when you eventually make withdrawals and no RMDs are required. In theory, you could allow the money to grow as long as you'd like.

Let's say you're 55 and make a $200-per-month contribution to one of these Roth accounts. While it may be worth $98,389 at age 75, it could be worth $151,798 five years later, at age 80. That's money you could use to hire in-home help, pay medical bills, or spend in another way that meets your needs.

Just because you're starting out later than you hoped doesn't mean you should give up on retirement savings entirely. Every dollar makes a difference.

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