Starting to save for retirement early makes it easier to achieve – and possibly surpass – your retirement goals.
According to the Census Bureau, in 2020, only 58.1% of Baby Boomers (ages 56-64) owned at least one type of retirement account. And for Gen Xers (ages 40-55), that number was only 56.1%.*
This statistic underscores the need for assistance, which is where we come in. Let’s delve into the rationale.
Why Begin Saving for Retirement?
Aside from the desire to indulge in leisure activities like golf or travel, there are several legitimate reasons to begin savings for early retirement early:
- Dependency on Social Security is Inadequate. Unfortunately, relying solely on Social Security benefits during retirement is insufficient. Supplemental savings are necessary to avoid financial strain or frugality in later years.
- Longer Life Expectancy. With the average U.S. life expectancy surpassing 78 years, retirement planning must account for potentially lengthy post-career years.
- Escalating Healthcare Expenses. Healthcare costs tend to outpace inflation, and aging often correlates with increased medical needs, demanding substantial financial provision.
When Is the Best Time to Start Saving?
The answer is simple: now. Even small, regular contributions accumulate significantly over time, courtesy of compound interest. This phenomenon allows earnings not only on the initial investment, but also on previously accumulated interest.
Regarding retirement savings, several key factors merit consideration:
- Age: The earlier one begins saving, the more pronounced the benefits of compound interest.
- Income: Savings capacity hinges on income and expenditure levels. Despite limitations, any contribution, no matter how modest, is valuable.
- Risk Tolerance: Youth affords a longer investment horizon, potentially justifying higher-risk assets for greater returns.
- Retirement Age: Individual preferences dictate retirement timing, influencing savings strategies. Early retirees may adopt more aggressive saving approaches.
- Desired Lifestyle: Retirement goals, housing preferences, travel aspirations, and leisure pursuits, inform financial targets.
Once retirement objectives are defined, various savings avenues become accessible:
- Employer-sponsored retirement plans, such as 401(k)s and 403(b)s, offer tax advantages and sometimes employer matching contributions.
- Individual Retirement Accounts (IRAs) provide tax benefits irrespective of employer offerings, subject to income limitations.
- Annuities, purchased from insurance companies, guarantee retirement income streams, albeit with complexities requiring careful consideration or professional guidance.
Initiating Retirement Savings
Beginning early is the key, so here’s a few items to give your savings efforts a jump start.
- Establish a budget to monitor income and expenses, identifying areas for potential savings.
- Set clear financial goals, determining the amount you need for retirement and crafting a savings plan accordingly.
- Automate savings by scheduling regular transfers from checking to savings or investment accounts, facilitating consistent contributions.
Whether you picture yourself globetrotting from city to city or quietly relaxing along a mountain stream, beginning your retirement savings early promises this time for relaxation and adventure.