Saving for retirement isn't easy, and it's tempting to shove it to the bottom of your priority list so you can focus on more pressing financial responsibilities.
However, even if retirement is decades in the future, the best time to start saving is right now. Compound interest allows your savings to grow at an exponential rate the longer they sit untouched in your 401(k) or IRA, so the earlier you begin saving, the faster your money will grow. Put off saving for too long, and you may need to save significantly more each month to reach your goals.
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The million-dollar question: How much should you be saving?
The amount you should be saving each month depends on a slew of factors, such as how old you are, what age you plan to retire, and how much you want to have stashed in your retirement fund by then. But regardless of any of those factors, it's important to start saving at least a little right now. That's because for every year you wait to begin saving, you'll need to save more each month to catch up. And if you wait too long, it may become impossible to reach your goals.
For example, say you want to save $1 million by the time you turn 65. Assuming you're earning a modest 7% annual rate of return on your investments, here's how much you'd need to save each month depending on the age you began saving:
| Age You Began Saving | Amount Saved per Month | Total Savings by Age 65 |
|---|---|---|
| 25 | $450 | $1,078,029 |
| 35 | $900 | $1,020,176 |
| 45 | $2,100 | $1,033,086 |
| 55 | $6,100 | $1,011,364 |
Source: Author's calculations
For most people, saving more than $6,000 per month is simply not feasible. But if you had started a few decades earlier, saving a few hundred dollars per month might have been within reach.
The concept also remains the same regardless of what your retirement goals look like. You may not be aiming to save $1 million, but no matter what your saving target is, it's much easier to reach it when you start saving sooner rather than later.
What to do if you're off to a late start
If you've fallen behind on saving and are just a few years away from retirement, that doesn't mean you should give up on your goals. But you might need to tweak your plan in order to save as much as possible by retirement age.
To start, consider whether you need to adjust your goals -- both the amount you need to save or the age you plan to retire. Sometimes working for just a few years longer than you'd planned can help you boost your savings by tens or even hundreds of thousands of dollars, and if you also adjust your retirement expectations so you can afford to live on less, you won't need to save as much in the first place.
Another option is to delay claiming Social Security benefits. When you wait until after your full retirement age (FRA) to file for benefits, you'll receive extra money each month in addition to your full amount. For example, if your FRA is 67 years old and you claim at age 70, you'll receive 24% extra on top of your full amount. That can amount to hundreds of dollars more per month, and if your savings are slim, that money can go a long way.
You may also choose to continue working part-time even after you retire. More than half of Americans in their 50s say they would prefer "unretirement" over a traditional retirement approach, according to a survey from TD Ameritrade. These workers say that instead of fully retiring at a certain age, they'd rather continue working but take extended "mini-retirement" breaks every few years. This approach can significantly stretch your savings, making it a good choice for those who are struggling to sock money away for the future.
No matter how you choose to prepare for retirement, it's crucial to get started now if you haven't already. By putting it off even for a year or two, you're only making it harder on yourself to catch up. But if you jump-start your savings today, you're giving yourself a much better shot at being able to afford a comfortable retirement lifestyle.
