The typical American spends 40 to 50 years of their life working. It sounds like plenty of time to build a nest egg, but low salaries, high inflation, and burdensome student loans create quite the challenge for some.
These factors influence not only how much people can save for retirement, but also when they can start saving. Here's a closer look at when the average worker today began saving for retirement, and how this affects their odds of achieving a comfortable retirement.
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A little more time could be worth a lot more money
When you begin saving for retirement has a huge effect on how much you end up with and how much you have to set aside out of your own pocket to reach your retirement goals. Most of your savings will likely come from earnings on your investments, and holding your investments for a long time can translate to much greater earnings.
For example, say you invested $100 to buy one share of a stock. If that stock has a 10% average annual return, you'd have about $10 in earnings if you sold it after one year. But if you held that stock for a decade, you'd have close to $160 in earnings -- more than your initial investment in the stock.
You can use this knowledge to grow your wealth for retirement. The average worker today began saving for retirement at 31, according to a recent Northwestern Mutual survey. Assuming they plan to retire at 65, that gives them 34 years to save for their future.
If they saved $300 per month over those 34 years and earned a 10% average annual rate of return, they'd wind up with about $923,500. But had they begun saving just one year earlier, their nest egg would be worth nearly $1.02 million. Only $3,600 would be from additional contributions. The remaining $92,900 would come from earnings.
Start saving for retirement as soon as you can
Don't feel discouraged if you got a late start on retirement savings or you haven't begun saving yet. Nearly a third of those Northwestern Mutual surveyed hadn't started saving yet, so you're not alone. But the sooner you begin, the better your chances of reaching your goals.
You don't need to wait until you have a lot of extra cash to contribute to a retirement account. Even a simple $5 investment could be worth hundreds of dollars by the time you're ready to retire.
Start with what you have and aim to increase your retirement contributions whenever you get a raise or a better-paying job. You could also try to increase your retirement savings rate by 1% of your salary per year. That's only an extra $400 per year, or $33 per month, for someone who makes $40,000 per year.
You may not have to save all on your own, either. Those who qualify for a 401(k) match should put their savings there first until they've claimed their whole match, or as much as they can afford to. If you earn a dollar-for-dollar match, you could effectively double your retirement account contributions for the year by claiming the whole thing.
Saving money consistently beginning as early as possible will go a long way toward a financially secure retirement. But sometimes, it's just not possible to set anything aside. If you run into this problem, delaying retirement is another way to buy yourself more time for your investments to grow. Plus, this also reduces the length and cost of your retirement, making it even easier to reach your goals.
