The sooner you start saving for retirement, the more opportunity you'll have to build a solid nest egg without having to sacrifice too much on an ongoing basis. But data from Nationwide tells us that Americans are putting in roughly a decade in the workforce before giving their long-term savings a thought. The average American begins funding a nest egg at age 31, and what that may seem like a good time to start focusing on retirement, if you wait that long, you'll risk losing out on years of valuable investment growth.
The problem with delaying retirement savings
Many workers hold off on saving for their golden years till their 30s because their 20s are largely spent paying off student debt and knocking out credit card balances incurred earlier in life. But if you neglect to save for retirement until you're 31, you'll miss out on years of compounded investment returns that allow you to build enough savings to pay your senior living expenses without worry.
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Let's imagine you're able to comfortably sock away $250 a month for retirement by making modest sacrifices in your budget, but not cutting back to a miserable extreme. If you begin setting that sum aside at age 31 with the intent of retiring at 65, you'll wind up with $462,000 in your nest egg, assuming your investments generate an average annual 7% return during that time, which is a reasonable assumption provided you go heavy on stocks in your IRA or 401(k).
But watch what happens when you start saving that $250 a month at age 21 instead of 31 -- assuming that same 7% average annual return, you'll end up with $958,000 instead. That's an amazingly large difference, which is why it pays to start saving from an early age, even if doing so isn't so easy.
Eking out money for your nest egg
It's hard to free up cash for retirement when you're grappling with an entry-level salary and need every dollar possible to pay your immediate living expenses, student debt, and credit card bills. But if you're willing to live as frugally as possible during that time, or cut back on non-essential expenses like dining out and travel, you'll have a real opportunity to accumulate some serious wealth for retirement without having to sacrifice too heavily down the line.
Another option to consider? Move back home after college, especially if you graduated with piles of debt. If you have parents who are willing to put a roof over your head at no cost to you, then putting some money away for retirement is more than feasible. Furthermore, living at home for a stretch will allow you to pay down whatever debt you have more quickly, and the sooner you do that, the easier it'll be to find money to put into long-term savings.
Finally, consider getting a side job on top of your main one. It may seem like a drag at first, but if you find something you like to do that can serve as an income source (think dog-walking, tutoring, or web design), then it may not seem like work -- more like taking a hobby and monetizing it.
Let's be clear: Many workers neglect their retirement savings until they're well into their 40s or even 50s, so if you wind up kick-starting your savings efforts at age 31, you're not in such bad shape, relatively speaking. But if you're able to start saving for your golden years 10 years earlier, you'll have a whole lot more money to work with by the time your career comes to a close. And that's something you're apt to be thankful for in the future.
