It's an unfortunate fact that most Americans are woefully unprepared for the future. A 2017 GOBankingRates study found that one out of every three adults has no money saved for retirement, while another 21% of Americans have less than $10,000 in a dedicated retirement account.
But while those who aren't saving a ton might come to regret that decision, there's one mistake they're even more likely to bemoan: not starting earlier. In a 2017 TIAA study, 55% of respondents say their single greatest retirement-related regret is not saving earlier on in their careers. In fact, nearly 10% more people regret not saving earlier than do regret not saving more.
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The irony is that those who start saving early enough don't have to worry about not saving more. In fact, in some cases, funding an IRA or 401(k) early on in one's career can yield a much larger balance than making much larger contributions later in life.
If you've been putting off retirement savings, now's the time to think about changing your ways. The sooner you work on building your nest egg, the greater your chances of retiring on time and in comfort.
Stop making excuses
According to GOBankingRates, one of the main reasons workers aren't saving for retirement boils down to misplaced priorities. In fact, a good 40% of workers put pretty much every other near-term savings goal (like vacations) ahead of retirement. Some other big reasons for not saving include needing the money for emergencies, not having access to a workplace plan, and feeling confident they'll manage to get by on Social Security alone.
Now, let's explore these excuses more closely. While it's true that retirement is a far-off goal, and it takes discipline to forgo short-term gratification in favor of something so many years in the future, if you wait until you're closer to retirement to start making a dent in your savings, you're going to run out of time. It's that simple.
Furthermore, while it's true that emergency savings should trump retirement savings, what you can't do is underfund your emergency account and keep tapping your nest egg as needed. Rather, work on accumulating three to six months' worth of expenses in a savings account, and once that's done, focus on retirement.
Not having a workplace retirement plan, meanwhile, is one of the easiest obstacles out there to overcome. While IRAs don't offer the same generous annual contribution limits as 401(k)s, they're available to anyone with earned income.
Finally, if you're not contributing to a retirement account because you think Social Security will pick up the slack, you're in for an unpleasant surprise. Even in a best-case scenario, Social Security will only replace about 40% of your pre-retirement income, but most folks -- even those willing to live frugally as seniors -- need closer to 80% of their previous earnings to cover the basics. In other words, if you're banking on Social Security alone, you stand a good chance of running out of money at the worst possible time.
Use compounding to your advantage
The reason so many workers are able to amass sizable nest eggs is that they prioritize retirement savings early on and let compounding work its magic over time. Compounding is the concept of earning interest on interest, and it can help you turn a series of relatively small contributions into a whopping sum over the course of years. That's why it's crucial to start saving for retirement as early as possible -- and why so many older workers regret not having started sooner.
To really see the impact of compounding, take a look at the following table, which shows how much of a nest egg you stand to accumulate by saving just $300 a month over time:
You can't help but notice the difference between giving yourself a full 40 years to save and starting just half a decade later. Though you'll only end up putting in an extra $18,000 of your own money during that five-year period, you'll end up with an extra $222,000 as a reward for starting early.
Furthermore, watch what happens when you wait until age 45 to start saving, thereby shortening your compounding window to just 20 years. Though you'll still double the $72,000 you'll contribute between the ages of 45 and 65, you'll get just $75,000 in return. On the other hand, if you start saving at age 25 and contribute a total of $144,000, you'll enjoy an impressive $575,000 gain.
If you still have many working years ahead of you, and you've yet to start funding your retirement account, now is the time to learn from other people's mistakes. There's a reason "not saving earlier" tops the public's list of retirement-related blunders, and if you don't get moving on funding that IRA or 401(k), there's a good chance you'll wind up sentencing yourself to a cash-strapped existence during retirement. And really, you deserve better.
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