Many people don’t start saving for retirement until they’ve reached their mid-40s. But just like it’s never too early to set aside a college fund for your kids, you shouldn’t wait until you’re in your 50s to start putting aside money for your golden years. Here are some reasons why you should start saving early for your retirement.
It Gets Harder to Save When You’re Older
Saving for retirement isn’t always easy, especially when you get older. You will have additional expenses and financial obligations to take care of, like mortgages and children. You might also have to account for your health and medical bills.
Moreover, the cost of living generally increases over time because of inflation. The bottom line is by waiting to save for retirement until later in life. You’re likely to need to make more significant adjustments to how much income you’ll have available.
You Don’t Want to Outlive Your Savings
With better healthcare, more and more Americans face the possibility of outliving their assets. The average life expectancy of Americans is at 79.6 years, meaning your post-retirement years will probably be significantly longer. In addition, this could result in more money being directed towards your medical bills.
Unfortunately, according to a recent study, some have less than $5,000 saved for retirement, and another 15% have none. A big reason for this can be attributed to a lack of understanding of the actual cost of retirement and what savings can do for you during your post-retirement years.
The Sooner You Start Saving, the More Time Your Money Has to Grow
The earlier you get started, the more time you have to plan your investments and ensure your savings grow into a significant amount before retirement day rolls around. A $1,000 contribution made at age 20 can extend into $11,715 by the time a person reaches 67 if they earn 7% annually—a standard rate of return on conservative investments—and are left untouched.
However, when that same $1,000 contribution is made at 45, it will only grow to $2,764 by age 67 under the same conditions. And if you wait until 60 to make your first contribution, your balance would only increase to $4,819—less than half of what you could have accumulated if you had started earlier.
This results from lower capital growth—since the investor has less time overall—and lower returns—due to investment fees eating away at your earnings.
It’s Easier to Handle Market Ups and Downs Over Time
If you’re not yet convinced you need to start saving for retirement earlier, here’s another reason: market corrections.
When the stock market dips, your investment capital is likely to drop as well. If your retirement is only a couple of years away, your portfolio might not have the time to recover from a significant dip before you need its funds.
To be effective for a percentage-based investment strategy such as dollar-cost averaging (where you invest the same amount in a mutual fund on a regular schedule), you need decades for compounded returns to take effect.
Starting your retirement planning early could make the difference between leading a comfortable life and struggling financially once you retire. Don’t know how to start planning? Reach out to Briteside Solutions today!