We're told we're supposed to save for retirement from the moment we collect our first paycheck. Yet for many Americans, that's just not reality -- especially among those who emerge from college saddled with student debt. It's not shocking, then, to learn that the average working American begins saving for retirement at age 31, according to data from Nationwide. And while that might seem like an ideal time to start building a nest egg, waiting until 31 to focus on retirement savings means losing out on years of accumulated wealth.
Can you afford to wait?
On the one hand, saving money starting at 31 means giving yourself a solid 36-year window or longer to amass retirement wealth. That 36 years is based on Social Security's full retirement age of 67 for workers born in 1960 or later.
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Now let's say you manage to start setting aside $300 a month for retirement beginning at age 31, and you keep doing so until 67. If your investments generate an average annual 7% return during that time (which is actually a few percentage points below the stock market's average), you'll wind up with $536,000. That's certainly nothing to scoff at. But as the following table shows, you could instead retire with so much more by beginning to save earlier on in your career:
|
If You Start Saving $300 a Month at Age: |
Here's What You'll Have by Age 67 (Assumes a 7% Average Annual Return): |
|---|---|
|
22 |
$1.028 million |
|
23 |
$958,000 |
|
24 |
$892,000 |
|
25 |
$830,000 |
|
26 |
$772,000 |
|
27 |
$719,000 |
|
28 |
$668,000 |
|
29 |
$621,000 |
|
30 |
$577,000 |
|
31 |
$536,000 |
CALCULATIONS BY AUTHOR.
You can't help but notice that the ending balance grows lower and lower as retirement savings are pushed off. That's because when you wait to start saving, you don't just lose out on the principal contributions you could've added to your account; you also lose out on growth on that money. And that's why 31 really isn't the ideal age to start saving for retirement -- especially if you have the means to do so earlier in life.
Freeing up cash to save
Of course, it's hard to filter money into a retirement plan when life's more immediate expenses are staring you right in the face. But there are a few steps you can take to make saving from an early age feasible.
For one thing, consider moving back home after college if you're deep in debt and don't expect to earn more than an entry-level salary for quite some time. Doing so could save you a bundle of money on major expenses like rent and utilities, thereby enabling you to not only fund a retirement plan, but perhaps pay down those loans more quickly.
Another option? Get into the habit of saving your raises and bonuses. Since that money won't be cash you're relying on to pay your bills, you can apply it to long-term savings instead. Doing so is especially easy if your employer offers a 401(k), in which case you'd simply let your payroll department know that you'd like more money to land in that retirement plan.
Finally, if money is tight but you're motivated to save, look at getting a side hustle. Of the millions of Americans who have one today, 14% work a second job in order to have money to put into a retirement plan.
Beginning to save for retirement at age 31 is far better than waiting five, 10, or 20 more years to get moving. At the same time, know that you could be losing out on close to a decade of growth in your retirement plan. Even if you can't manage more than $50 a month at age 22 or 23, you're still better off putting that money into an IRA or 401(k) than spending it needlessly. And while you might resent giving up more of your limited earnings at the time, you're sure to be thankful for it when you're old and gray.
