Of course, the obvious makes sense—the sooner you start saving, the better off you will be. And the longer you wait, the less money you’re likely to have during retirement. Many retirement investment options earn compounding interest, so the earlier those funds can accumulate returns, the larger your retirement funds may grow.
Sometimes people put off funding their retirement savings vehicles because they believe they need a large amount of money to invest each year. But it’s okay to contribute what you can, no matter how small the amount. As your life and career expand, you’ll be able to readjust your contributions to increase your saving each year.
Let’s consider the potential cost of procrastination. The following example shows how someone who starts saving at a young age for only 10 years can potentially accumulate more money for retirement than someone who waits 10 years to start saving and continues to save every year until retirement age.
EXAMPLE: Julie and Lisa want to retire at age 65. Lisa starts saving at age 23 by investing $4,000 per year. She does this for 10 years and then stops but does not take any money out of the savings vehicle. Julie does not begin saving until she turns 33, at which point she invests $4,000 per year until age 65. Assuming an 8% annual return for both accounts, here’s how much Lisa and Julie each accumulate by age 65.
Lisa’s 10 years of investing =
Julie’s 32 years of investing =
Difference of waiting 10 years to start saving =
(This material is for illustrative purposes only and not intended to depict or predict the performance of any specific investment. This example does not reflect the impact of taxes, transaction costs, or other fees generally associated with investing.)
So whether you’re 23, 33, or even 53, the sooner you start saving, the better. It’s only too late to save if you don’t start at all.