It’s Never Too Late to Start Saving for Retirement
Since the day I started working in the financial industry, there has been one question that seems to come up more than the rest. I hear it from family, friends, friends of friends and even complete strangers. The question is this: “I haven’t done anything to start saving for retirement, is it too late?” Whether the person asking is 30 or 50, the answer is always the same – NO!!! And if you haven’t already started, it’s more important than ever to get started now.
One of the biggest reasons to start saving and investing as soon as possible is compounding – interest that accrues on the money you have already invested and the interest you have previously earned. To understand how compounding works, think of a savings account with $10,000 that earns 1% in interest each year. In the first year, you earn $100. In year two, you still only earn 1%, but this time it’s earned on your original $10,000 plus the $100 in interest you earned in year one, resulting in $101. An extra dollar may not sound like much at first, but as you keep adding to the account and continue to have the account grow, the numbers can really add up.
With a retirement investing account you have the opportunity to earn more than the 1% used in the saving’s account example above. Below is a chart that shows how saving each month into your 401(k), with compound interest, can quickly build up your retirement savings. We have assumed a retirement age of 65 and an annual rate of return of 7%.
| Current Age | 20 | 30 | 40 | 50 |
| Years to Retirement | 45 | 35 | 25 | 15 |
| Current Balance | $0 | $0 | $0 | $0 |
| Monthly Contribution | $1,000 | $1,000 | $1,000 | $1,000 |
| Value at Age 65 | $3,792,000 | $1,801,000 | $810,000 | $317,000 |
As you can see, the person with the biggest time advantage is the 20-year-old who is able to start saving aggressively. Over the course of 45 years, his savings will grow to nearly $4,000,000 while he’s only contributed $540,000. It may be tough for a 20-year-old to find an extra $1,000 a month to save, but it could be realistic to save that much or more for someone who is 40 or 50. You might not be able to save millions of dollars before retirement, but you can still put away a large sum. And remember that these calculations assume you haven’t saved a single dollar for retirement. If you have some savings in place or you’re able to save more than $1,000 a month, the value of your account can grow even larger.
For more information about compounding, check out our Smart401k Retirement Education Center article about it and visit our savings calculator that illustrates the importance of starting now.
So how do you get started on a savings plan? Get help from a professional. The advisers at Smart401k are here to help put you on the right track towards retirement. We create an investment plan that’s customized to your unique situation and help keep you on track as you move towards your retirement goals. If you have questions about how we can help, call us at 877.627.8401, or send an email to info@smart401k.com. Ready to join? Go to the Smart401k Registration page and get signed up.
Joe McCulloch, Investment Adviser
Smart401k is a Web-based investment adviser providing unbiased advice to help employees invest in their employer-sponsored retirement plans. Smart401k provides service to almost 11,000 clients who collectively have more than $1.5 billion in assets. Individuals receive personalized investment recommendations based on the funds in their plan and support of professional investment advisers available to answer all investment questions. Based in Overland Park, KS, Smart401k can be found at Smart401k.com.
