Why You Should Start Saving for Retirement Now


saving for retirementToday is the day we’re going to clean out the garage, weed the garden, paint the kid’s bedroom — and start saving for retirement.

Those all are chores that we know should have been done yesterday, but we think can wait until tomorrow.

The garage, bedroom and garden can wait. Retirement savings can’t.

Saving for Retirement Takes Time

Time is an ally or an enemy with investments. You choose which it will be. There is dramatic evidence that doing it today will produce results that overwhelm whatever gain you may realize by doing it tomorrow. Any online investment calculator will confirm that.

For example, if you start a retirement savings account at 55 and contribute $3,000 a year ($250 per month) for the next 10 years with a 7 percent return, you will have $43,523 by time you reach retirement age of 65.

That’s the kind of return you get by waiting for tomorrow.

However, if you start at 25 and contribute the same amount — $3,000 annually for 10 years at 7 percent return — your retirement savings account would be worth $353,259 when you reach 65. That is without you contributing a penny after the age of 35.

The $310,000 difference is the result of time and compounding, a wealth-building phenomenon where each year’s investment gains generate more gains the next year.

The reality of investing is the more time you have, the better the chances are you will succeed,” Matt Kelly, senior adviser at Morgan Stanley said. “Investing is a marathon, not a sprint, so it just makes sense to give yourself as much time as possible to reach your goals.”

Where You Save is Not Nearly as Important as When You Start Saving for Retirement

Where to open a retirement savings account is totally subjective. Knowing someone you can trust at a financial institution could be a comfortable starting point. At the very least, that person should be able to explain the boundaries for minimum investment, fees, automatic contributions and investment options.

The slam-dunk retirement savings option is a 401(k) investment in which your company matches a certain percentage of your contributions. This is free money that should never be passed up. For example, if your company matches contributions up to three percent, you put in $3, the company puts in $3 and now you have $6 to invest. That’s a 50 percent return before you even choose a stock, bond or mutual fund.

Another option is to start a traditional IRA account (taxed when you cash it in at retirement) or Roth IRA (taxed when you buy it, no taxes if you cash it in at retirement). These are available from the investment brokerage houses, some banks and credit unions, or you can do it yourself online. The benefits of an IRA account are that interest, dividends and capital gains are not subject to tax while they remain in the account but are taxed upon withdrawal, usually at a lower tax rate.

Either way, there are going to be fees involved. Investors should be careful to know how much they’re paying. In some cases, the fees can eat up 30 to 40 percent of your gains. Read the fine print carefully.

The important thing is to get started. Retirement savings are not nearly as dependent on the broker you use, the stocks or mutual funds you select or how much money you invest as they are the day you started.

Start today and leave the garage, garden and bedroom for tomorrow.

Bill Fay is a writer for Debt.org, focused mainly on news stories about the spending habits of families and government. He spent 21 years in the newspaper business and eight more in television and radio, dealing with college and professional sports, then seven forgettable years writing speeches and marketing materials for a government agency.

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36 Responses to Why You Should Start Saving for Retirement Now

  1. David @my2centopinion 06/12/2013 at 3:37 pm #

    Good encouragement toad. I wish companies would default their employees to contributing to their 401k up to the matching amount. It would be better for the employee long-term and they will probably thank them for it once they get closer to retirement time.

    • Paul 06/14/2013 at 10:02 am #

      I don’t think Congress will go that direction but I agree with you!

  2. Tushar @ Everything Finance 06/12/2013 at 7:27 pm #

    I couldn’t agree more about the fact that it’s not about where you save, it’s when you start saving. I started young which will be to my great advantage. I think everyone needs to start ASAP!

    • Paul 06/12/2013 at 11:00 pm #

      While there are obviously poor choices in where to invest your money, by far, starting early makes up for higher expenses or asset class differences. Even if you don’t have much, start early!

  3. Ben 06/13/2013 at 5:43 am #

    Great points. Unfortunately, for most people it’s easier to clean the garage than save for retirement because they can easily check that task off their list. Retirement is a much farther away so it’s easier to put off until later. I agree that just getting started, no matter what kind of account it is, will be beneficial to all.

    • Paul 06/13/2013 at 8:05 pm #

      We all know we should save more then we currently are saving. For many, stagnant or declining incomes make it next to impossible and that leaves a difficult decision to cut expenses, look for new employment, go back to school, or a combination of all three!

  4. cj 06/13/2013 at 6:32 am #

    Paul! Nice article. We began saving for retirement when I was 29 and I am now 43. It helps me sleep at night knowing that we don’t have to start form 0 today. That would make us very sad and mad, like Burgermeister Meisterburger. When we could afford it a few years back, we upped our contributions too. Thanks for sharing some excellent advice!

    • Paul 06/13/2013 at 8:07 pm #

      We are pretty good savers also and I do have a pension. Having said that my financial situation has drastically changed recently and has affected toe retirement situation. It is important to save as much as you can, even if it is a small amount each month. Add to it when you can and stick with the plan!

  5. Mike@WeOnlyDoThisOnce 06/13/2013 at 6:58 am #

    I couldn’t agree more! There always seems to be an excuse to start tomorrow, next week, or next year. Small steps are a great way to build a solid financial situation.

    • Paul 06/13/2013 at 8:08 pm #

      I like the way you think Mike! Solid foundations are built brick by brick!

  6. Midlife Finance 06/13/2013 at 9:29 am #

    Start saving as soon as possible (and as much as possible) and your older self will thank you for it. Saving early also help you limit lifestyle inflation. :)

    • Paul 06/13/2013 at 8:10 pm #

      Funny how much smarter we are the older we get!

  7. Your Daily Finance | Thomas 06/13/2013 at 1:55 pm #

    Oh if I could be like the Kia commercial and go back and visit my younger self. I would have definitely started saving in my early 20′s. For many I don’t want to say it was an excuse not saving but rather a lot of lack of education. I wasn’t looking for information like this and I didnt come from a family that had the financial no hows either. A lot of kids learn about credit cards at college when they are being ask to sign up for free shirts. Start early and stick to the plan.

    • Paul 06/13/2013 at 8:00 pm #

      Hind sight is a wonderful thing isn’t it? It doesn’t do any good criticizing or beating yourself up over it, it is what it is and most of us would have saved more if we could go back! The important thing is to start saving more now!

  8. Buck Inspire 06/14/2013 at 1:03 am #

    Ah, too be young again. Great points for starting early. My memory may be a little foggy, but back in my 20′s, I don’t recall having thousands of dollars lying around to store away for retirement. Haha! But I do agree, save as much as you can as soon as you can. Power of compounding!

    • Paul 06/14/2013 at 9:42 am #

      By definition young and no money are synonymous! Start small and start early!

  9. Finance Romance 06/14/2013 at 6:08 am #

    Some good points made here, although i’ve decided against going for a retirement plan instead investing in property, which will finance my future when retired, some may say this is risky, but i’m willing to take a chance with it, you never know when you may need to cash out early which a lot of pension funds simply don’t let you do.

  10. SB @ One Cent at a Time 06/16/2013 at 10:01 am #

    I agree, doesn’t matter which route of investment you take. What matters most is that you are keeping aside a portion of your income for retirement.

    And there’s no better time to start saving for retirement than ‘Now’. Good tips.

  11. Martin 06/17/2013 at 8:42 pm #

    Some of the words in this post should be written in stone and everybody should have received of of the stone blocks on his back to remember it. The problem is, that this is not taught in any of the schools – at least i haven’t seen it anywhere. I was also one of the fools who didn’t realized that time is my best friend if I let it to be a friend of mine instead of enemy. Due to my ignorance I made it my enemy. Fortunately I still could fix my errors and I had some accounts set up early, so now contributing to it at high speed to catch up as much as possible.

  12. Timothy Mobley 06/19/2013 at 2:15 pm #

    As you highlight in your post, the power of compound interest is not be underestimated! It is important to start early but also very important to have a personalized plan that accounts for all individual details specific to your situation. While there is no “one size fits all” plan for retirement but if there is one thing that we all have in common is that WE MUST START EARLY.

  13. David @ PBC 06/23/2013 at 7:09 pm #

    This is a very informative article. Saving for retirement is a lengthy process. Hence, we should start right away. The IRA account can be a good option but we need to understand the terms carefully. The point is retirement savings should not really wait.

  14. Felix Lee 07/04/2013 at 6:58 pm #

    I actually started saving for retirement after I got my first job. It may not be that much yet, but I am glad I started early.

    • Martin 07/04/2013 at 7:46 pm #

      Felix, even small money saved now will make you huge result 20 or 30 years later. Even if you start saving 50 dollars monthly and invest into commission free dividend paying ETFs for example, and reinvest the dividends you will see how powerful this strategy can be.

  15. MoneyAhoy.com 08/20/2013 at 11:15 am #

    My company puts in a default 3% without you doing anything. They then have a matching plan. It’s been great for encouraging younger employees to begin saving for retirement.

    I only wish I would have started investing some of my money in high school…

  16. Financial Independence 09/09/2013 at 5:43 am #

    I view saving for retirement as a journey. You need to reach the end of your journey by retirement, but you can either choose to take it slow and steady over your working life, or try and make a mad dash at the last minute. If you decide to make it a sprint rather than a marathon you are likely to get tired and suffer, whereas if you’re consistent at making regular progress you can minimise the pain while still making it to your goal.

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