Many people wonder when is the best time to start saving for retirement. You can ask someone about when they think is the best time to start saving for retirement and see what kind of answers you get. Generally the older generations will wish they had started saving sooner while the younger generations figure they have plenty of time to start.
It would appear that time might be the most important factor to consider when saving for retirement. Let’s examine a couple different ideas on when to begin saving for retirement.
Saving for Retirement While You are Young.
The younger you are when you start investing, the more money you will have gaining interest over a longer period of time. This will help out in the long run, due to the magic of compounding interest. Sure, having a bigger bank account would be great and going out with friends on the weekends is a lot of fun, but putting a chunk of your earnings away will reward you a hundred-fold in fifty years.
Saving for Retirement When You are Older.
Having a few thousand dollars you managed to save when you were young compounding over fifty years sounds appealing but it is tempting to wait until you have a larger income to start saving. When you are older you might have access to a 401k with match that you didn’t have at your first entry level jobs. Not only that, but it is much easier to max out all of your retirement accounts each year when you are older and making a larger income versus when you were young. And of course there are also catch-up provisions which allow you to contribute more than you were allowed to contribute when you were younger.
The Best Time to Start Saving for Retirement
All that being said I think the best time to start saving for retirement, no matter if you are 25 or 55, is the present. One of the big debates is that a person who can put away $1,000 a month when they are 18 will be much better off than someone who waits until they are 28 to start saving. This debate doesn’t make much sense because not too many people have $1,000 a month to start stashing away for a rainy day when they are 18. When you are older, funds are typically more readily available.
While putting money away at 18 would be fantastic, there are limited options available for retirement planning. Not many younger people are working in a career with the benefits of company retirement programs such as stock options, 401(k) and the entire fund matching incentive. You see, the 18 year old has to put all $1,000 in the account himself or herself while the adult working in the corporate world with benefits like this only has to put $500 and the company will match.
Compounding interest is not a force to be taken lightly. Think about the old adage; ‘which would you rather have, a million dollars today or a penny doubled every day for a month?’ Do the calculations yourself if needed, but I can tell you compounded interest is the answer.
There are benefits to starting at both ends of the spectrum, but why wait for another day? Go ahead and take advantage of as many of the positives you can and start saving for retirement today. After all, it is only the rest of your life we are talking about.
5 responses to “The Best Time to Start Saving for Retirement”
The bottom line is to start early, and save as much as possible. If I were to change one facet of the public schools, it would be to add financial management and long-term retirement planning to the core curriculum of every grade level.
Yes, we need to start saving as early as possible. But, sometimes, it’s difficult for a student to save money. He just has as much as he needs. So, he doesn’t get extra money at all. Everyone has experienced living in college and know this very well. Besides, even when one gets employed and gets paid, he needs to spend most of his income in getting a new house, getting married, etc. So, I think the best solution is to know how to make an extra income when you are so young. And this way you can get some extra money to save.
I’ll clarify. Financial management and retirement planning skills should be taught in the public schools. All student would greatly benefit from an understand of how money works.
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Thanks Adam for the clarification 🙂