Saving for retirement is easier and more within reach than you might think. Here’s how to start small and early for a big return later down the road.
Saving for retirement can sometimes take a backseat to the day-to-day financial demands individuals and families often have. Plus, for many, retirement seems too far away to prioritize.
While it’s never too late to start saving for retirement, the impact of starting early has a direct effect on how much you need to set aside per month to reach your goals. Let’s look at two individuals and how their starting ages for retirement savings impacts their retirement.
The Case for Starting Retirement Savings Early
Jill started saving at age 25, putting aside $500 per month for retirement. With a modest 7% return, this would grow to over $1.5 million by retirement age of 67.
Carl started taking retirement seriously at age 45 and began saving $500 per month, the same amount as Jill when she started at 25. With the same return Carl would only have $300,000 at age 67.
Starting later left Carl with just 20% of what Jill had. In order for Carl to catch up from his late start, he needs to save $2,500 a month ($30,000 per year) to have the same amount as Jill by retirement.
Smaller And Earlier is the Key to Saving for Retirement
By starting earlier, smaller amounts compound for longer periods of time, resulting in much larger gains over your lifetime. The above are just examples. Any amount you can save earlier in your career has a big impact later in life.
By making retirement savings a priority early, you can easily hit your personal goals and retire when planned with enough saved to meet your expenses as you transition out of the workforce.
A Few Retirement Savings Tricks
There are a couple of tricks to staying consistent in your savings.
- Automatically deduct savings: For many, once money is in a checking account, it will get spent. The best way to save is with a payroll deduction. Since the money is not part of your paycheck, you never have to think about it. Your employer may offer a match to your contributions. There can also be tax-benefits to saving, lowering your total taxes at year-end.
- Split your payroll deposits: Another best practice for savings is to have your payroll direct deposit split between your Checking and a Savings account for retirement. Saving just $100 per paycheck this way can have a large impact on meeting savings goals without having a big impact on your monthly finances.
- Automatic transfer to an IRA: Finally, a monthly transfer to your Individual Retirement Account (IRA) with the Credit Union will allow you to painlessly build up large savings over time.