If you want to retire, you need to work toward that goal throughout your entire career. While you may feel like you have lots of pressing financial obligations that should take priority, the reality is that you can't afford to wait to start saving in a retirement plan.
If you're not investing in a 401(k), IRA, or other tax-advantaged retirement account right now, you could be in danger of never being ready to retire. Here's why.
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You can't live on Social Security alone
As disappointing as it may be, you can't count on Social Security to support you as a senior. It will help, of course, but replace only around 40% of what you were making on the job. You'll need around 80% of pre-retirement income, at a minimum, to avoid a drastic and unpleasant decline in your quality of life.
Since Social Security doesn't provide enough to cover even the basics for most retirees, you must have extra money from somewhere. Your employer probably doesn't provide a pension and, at some point, you'll get too old to keep working. So savings is the only option left.
You'll need to have enough money saved so you can withdraw funds from your accounts each year of your retirement to support yourself without draining the account dry and ending up with nothing when you're the oldest and sickest in late retirement. It's hard to save that much, so it's crucial to start working on it today.
The longer you wait, the more you have to save
It may be tempting to assume that you can just catch up by saving more later when you're more financially stable -- but that's not as easy as it seems. The longer you wait to begin investing, the more you'll have to invest every single month to end up with the nest egg you need. That's because you won't have the power of compound growth working for you.
When you invest, the money you earn from those investments will be reinvested and help your wealth grow without you needing to contribute every dollar to your account yourself. Compound growth makes it possible to save a reasonable amount for retirement and still end up with the nest egg you need.
Say, for example, you have 30 years to save for retirement and need a nest egg of $750,000. If you earn 10% average annual returns and save just $380 per month, you'll hit your target. That's a reasonable amount to save.
But if you wait and have just 15 years to amass your nest egg, you'll instead have to put aside $1,967.10 a month. Suddenly, retiring may feel like it becomes impossible since not many people can save that much each month.
Don't burden your future self with the impossible task of saving huge sums or trying to live on a Social Security benefit that isn't nearly big enough. You need to start investing for retirement right now to provide yourself with the financial security you deserve.
Tax-advantaged plans like a 401(k) or IRA can make it easier to save enough, so open one if you haven't already and start contributing to it now. You don't have much choice if you want to retire someday in the future.
