When I read recently that the average 60-something has just $112,500 saved for retirement, I was disappointed but not completely shocked. The unfortunate reality is that a lot of people are grossly underprepared for retirement and risk struggling financially during their later years due to a lack of savings.
Of course, it's easy to see why someone might get to the point of nearing retirement age with only a little more than $100,000 socked away. Life is expensive, and it's hard to prioritize retirement savings when you have pressing expenses to cover.
But one of the biggest mistakes you can make in the course of saving for retirement is waiting too long to start doing it. So if you've been putting off 401(k) or IRA contributions, you may be setting yourself up for disaster.
Image source: Getty Images.
Why you really can't afford to wait
I can totally relate to not wanting to prioritize retirement savings. When I was in my 20s, I had student debt to pay off, an emergency fund to build, and a whole bunch of different goals I was trying to meet.
In my 30s, I had expensive mortgage payments to make and child care costs to cover. (And trust me when I say that the latter exceeded the former.)
But still, I've always made an effort to pump some amount of money into a retirement plan. I'm now at a point where I'm still a couple of decades away from retirement age, but have well more than $112,500 socked away. If you want to avoid struggling financially later in life, then the time to start saving for retirement is now -- whatever your age.
To show you how problematic it can be to put off retirement savings, let's assume that you're able to assemble an investment portfolio capable of delivering an average annual 8% return over time, which is a bit below the stock market's average. Let's also assume your target retirement age is 67. That's full retirement age for Social Security purposes for anyone born in 1960 or later.
Based on the return above:
- If you begin saving $300 a month for retirement at age 47, you'll end up with about $165,000 by age 67
- If you begin saving $300 a month for retirement at age 37, you'll end up with about $408,000 by age 67
- If you begin saving $300 a month for retirement at age 27, you'll end up with about $933,000 by age 67
Notice the huge difference there. Funding a retirement plan modestly in your 20s could leave you with close to $1 million by your 60s because you're giving your money more time to grow. Waiting 10 years cuts your balance by more than half, while waiting 20 years means retiring with less than 20% of the balance you might have with a 40-year savings window.
The numbers speak for themselves
Look, I know it's not easy to allocate money to retirement savings when you have essential needs to cover and wants to indulge. And yes, it's perfectly OK to indulge those wants, because we all deserve to enjoy life to some degree.
But if you want to put yourself in a position to be able to enjoy life in retirement, then understand how important it is to start funding your savings at a fairly young age. Waiting too long to make that move could be the thing that turns your dream retirement into an extended period of persistent financial stress.
