Saving for retirement is never easy, but with inflation staying stubbornly high and experts still warning about a potential impending recession, it can be even more challenging right now. Unfortunately, putting it off for even a few years can cause more headaches down the road.
While it may not seem urgent to start saving now (especially if you still have decades until retirement), time is your most valuable resource. In some cases, waiting too long to begin investing could cost you hundreds of thousands of dollars in potential retirement savings.
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Every single year counts
Compounding is the key to building a robust retirement fund. With compounding, you'll earn returns on your entire account balance, including any interest you accrue -- not just the money you originally invest. This will help your savings grow exponentially faster the more time they have to compound.
When you're saving for retirement, then, every single year counts. The more time you give your money to grow, the easier it will be for compounding to do its job. Over time, this can amount to hundreds of thousands of dollars.
For example, say you're 30 years old and plan to retire at age 65. Let's also say you're able to save $200 per month and earning a modest 8% average annual return on your investments. Here's approximately how much you could earn over time, depending on whether you start saving now, at age 35, or at age 40:
| Age | Total Savings Starting at 30 | Total Savings Starting at 35 | Total Savings Starting at 40 |
|---|---|---|---|
| 30 | $0 | $0 | $0 |
| 35 | $14,000 | $0 | $0 |
| 40 | $35,000 | $14,000 | $0 |
| 45 | $65,000 | $35,000 | $14,000 |
| 50 | $110,000 | $65,000 | $35,000 |
| 55 | $175,000 | $110,000 | $65,000 |
| 60 | $272,000 | $175,000 | $110,000 |
| 65 | $414,000 | $272,000 | $175,000 |
Data source: Calculations by author via Investor.gov.
In other words, that extra 10 years between ages 30 and 40 could amount to an additional $239,000 in total savings by age 65. And putting off saving for even five years could cost you around $142,000 in potential savings.
What if you can't afford to invest right now?
Money is tight for millions of people right now, and if you already have a long list of other financial obligations, adding another to the list may not be feasible. That's OK.
The most important thing to remember is that time is valuable, and even small amounts can go a long way if given more time to grow. If you truly can't afford to invest a single dollar right now, that's OK. But if you have even a little to spare, investing now is better than putting it off.
Even $10 per month can add up to more than $26,000 after 35 years, assuming an 8% average annual return. While that may not be enough to retire on, by thinking about investing in smaller terms (i.e. investing $10 here or $20 there whenever you can afford it), it can make your goals feel less daunting.
Keep in mind, too, that even if you can only invest a few dollars per month right now, that doesn't mean you can't increase your savings later. Again, every single year counts, and time is your most valuable resource -- no matter how much you can afford to save.
Saving for retirement is tough, but starting as soon as possible can make it more manageable. By investing whatever you can afford now, your future self will thank you.
