With the majority of Americans having less than $1,000 set aside for retirement, and almost half having nothing saved at all, the longstanding trend is to push off saving for retirement to meet shorter-term goals.
It’s easy to think that you will begin to save for retirement when you reach a more comfortable income level, but the longer you put it off, the harder it will be to accumulate the amount you need.
The Benefit of Saving Early
The rewards of starting to save early for retirement far outweigh the cost of waiting. By contributing even small amounts each month, you may be able to amass a great deal over the long term. One helpful method is to allocate a specific dollar amount or percentage of your salary every month and to pay yourself as though saving for retirement was a required expense.
The Cost of Waiting to Save
Here’s a hypothetical example of the cost of waiting. Two friends, Chris and Leslie, want to start saving for retirement. Chris starts saving $275 a month right away and continues to do so for ten years, after which he stops but lets his funds accumulate. Leslie waits ten years before starting to save, then starts saving the same amount every month. Both their accounts earn a consistent 8% rate of return. After 20 years, each would have contributed a total of $33,000 for retirement. However, Leslie would have accumulated $50,646, less than half, of the $112,415 Chris accumulated.*
Make Your Money Work for You
With a savings plan put into place now, you can put your money to work for you through compounding. Your contributions have the potential to earn interest, and so does your reinvested interest. Even small amounts can make a significant impact in the future. A good rule of thumb is to try and increase your contribution level by 1% or more each year as your salary grows.
Our Wealth Management by Huberty team is here to help you set up a plan to save for your retirement. Don’t wait – contact our team today!
*This hypothetical example of mathematical compounding is used for illustrative purposes only and does not represent the performance of any specific investment. Rates of return will vary over time, particularly for long-term investments. Investments offering the potential for higher rates of return involve a higher degree of investment risk. Taxes, inflation, and fees were not considered. Actual results will vary.
-Written by Eric E. Gurholt, CPA/PFS, CFP® | Financial Advisor
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