What's the Ideal Age to Start Saving for Retirement?
Key Points
The earlier you begin saving for retirement, the more investment earnings you'll have to rely upon.
Even small, routine contributions add up over decades.
- The $23,760 Social Security bonus most retirees completely overlook ›
When talking about retirement savings, most of the conversation centers around how much you set aside for retirement. This is an understandably important piece of the puzzle -- but not the whole story.
When you begin saving for retirement has a huge impact on whether you'll reach your savings goal on schedule. While there's no official best age at which to start retirement savings, there's one thing everyone can agree on.
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The earlier you start saving for retirement, the better
While many don't begin saving for retirement until their 30s or later, the earlier you start, the easier it will be to save what you need for retirement. Your earliest savings are often your most valuable because they're invested the longest. That can yield a significant amount of investment earnings to supplement your personal contributions.
Consider the following example of a person who saves $200 per month for retirement and earns an 8% average annual return over their lifetime. Here's what their retirement account balance would look like at 65, given different starting ages:
|
Age You Start Saving for Retirement |
Retirement Account Balance by 65 |
|---|---|
|
20 |
$927,613 |
|
25 |
$621,736 |
|
30 |
$413,560 |
|
35 |
$271,880 |
|
40 |
$175,454 |
|
45 |
$109,829 |
|
50 |
$65,165 |
|
55 |
$34,768 |
|
60 |
$14,080 |
Chart and calculations by author. All answers rounded to the nearest dollar.
The difference is pretty stark, and only a fraction of it is due to personal contributions. In this example, someone who began saving at 20 years old saved only $12,000 more of their own money than someone who began saving at 25. Yet the person who started saving at 20 has over $300,000 more by age 65.
Even small retirement contributions count
The above example illustrates the importance of saving for retirement as early as possible. Sometimes, people feel that they're better off waiting until they're earning more and can afford to make larger contributions. But this could backfire. The longer you wait to begin saving, the more personal contributions you'll need to make to reach your goals.
Instead, make regular contributions as soon as you're able to, even if they're small. Contributing $25 or $50 every pay period might not seem like much, but it can really add up over time. Then, as your income increases, you can boost your retirement contributions to help you reach your savings target more quickly.
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