It is never too early or too late to begin saving for retirement. To put it in the words of Carlos Slim, sometimes the world’s richest person, “Anyone who is not investing now is missing a tremendous opportunity.”
While becoming the richest person in the world may not be your ultimate goal (nor is it mine), his words ring true that if we are not putting aside money for the future, we are guaranteed not to have it when we need it. This is one of the few guarantees you’ll get in investing.
Possibly the hardest and most important step to retirement planning is the decision to get started. It is so easy to tell ourselves, “I’m too young to be investing for retirement” or “I’m too old and I’ve missed my window.” Maybe it’s the procrastination refrain in our head that “Now is not a good time, I’ll start contributing next year.”
Starting early is the best way to protect those retirement years, and it’s the best way to make a habit out of systematic savings. Let’s look at a few examples that highlight this.
Amanda is a 25 year old starting out her career making $30,000 per year*. If she begins saving 8.1% of her income (less any company match and/or profit sharing), with a moderate investment return, she will be able to create a 20 year income stream in retirement.
Her coworker, Ben, has delayed the decision to start contributing. Ben is 10 years older and makes more money at $40,000/year, but to accomplish the same goal, he will need to begin saving 14.6% of his income. (Both of these examples exclude potential Social Security benefits.)
The first money invested has the highest opportunity for growth; therefore, even making less money, the 10 years in Amanda’s back-pocket create a long-term impact that is difficult to make up.
Perhaps the greatest tool in Amanda’s retirement toolbox is the habit she’s created. As she makes more money over time, she will probably increase her contribution rate because she sees the positive impact of her systematic savings.
For those in Ben’s position (or even getting a later start), the first commitment is to begin the process. While you do have some ground to make up, set a plan to reach your contribution target. Ben may not be able to start contributing nearly 15% of his income immediately, but if he starts at 7% or 10%, the likelihood that he’ll get to 15% within a reasonable amount of time is much higher.
Retirement calculator tools can be a great resource as a diagnostic of your personal retirement plan savings.
Start now, set a plan, and begin creating the wealth you’ll need to accomplish your retirement goals.
*Salaries in this example are adjusted for inflation at a rate of 3% per year.