It’s a popular question among young professionals, and even not-so-young professionals: “When is the best time to start saving for retirement?” And the short answer — “start saving as soon as you can” — may not be as exciting as you’d expect. That may sound simple, but it’s true: time can be one of your biggest advantages.
Let’s break down retirement savings, reasons to start early, and places you can put your savings to help it grow a little quicker.
Why starting early matters
The earlier you start saving, the more time your money has to grow through compound interest. Compound interest means you can earn money on the amount you save as well as the interest your money earns over time. The U.S. Securities and Exchange Commission notes that even a small amount saved can add up over time because of compounding.
Think of it this way: saving $25 or $50 per paycheck may not feel like a huge move today. But over 20, 30, or 40 years, those regular contributions can build momentum. To see how this works, check out Investor.gov. This resource from the SEC offers a compound interest calculator that shows how monthly contributions, time, and expected return can affect potential growth.
What if you’re starting later?
If you’re in your 30s, 40s, 50s, or beyond and just started saving for retirement, you still have options. The key is to take action now.
Start by looking at your income, expenses, and current savings. Then decide how much you can set aside consistently. You may need to start small, and that’s OK. A steady contribution that fits your budget is better than waiting for the “perfect” time.
If you’re age 50 or older, you may also qualify for catch-up contributions. Keep in mind, the IRS notes that catch-up contribution limits may apply for eligible workers age 50 or older, with a higher limit for certain workers ages 60-63. Tax rules and contribution limits can change, so review current IRS guidance or talk with a qualified tax professional before making decisions.
How much should you save for retirement?
There’s no one-size-fits-all answer. Your retirement savings goal hinges on multiple factors including your age, income, lifestyle, and when you want to stop working.
A helpful first step is to estimate what retirement may cost. Think about housing, food, transportation, health care, taxes, and utilities. Then compare those future costs with possible income sources, such as Social Security, retirement accounts, pensions, or part-time work.
If you’re just getting started, choose a percentage or dollar amount you can manage. Then increase it when your budget allows. For example, you could raise your contribution after a pay increase, bonus, tax refund, or once you pay down a debt.
Where should you save for retirement?
Many people start saving for retirement through a workplace plan, like a 401(k). If your employer offers a match, try to understand how it works. An employer match is money your employer may contribute to your retirement account based on your contributions. If it fits your budget, contributing enough to get the full match can be a smart move.
You may also be able to save through an individual retirement account, also called an IRA. Traditional IRAs and Roth IRAs have different tax rules, income limits, and withdrawal rules, so it’s worth learning the basics before choosing one.
Should you save for retirement or pay off debt first?
Many people wonder whether they should focus on debt or saving for retirement. The answer depends on your situation. If your employer offers a retirement match, you may want to consider contributing enough to receive it while still making at least the minimum payments on your debt.
From there, look at your interest rates. High-interest debt can make it harder to free up money for future goals, so building a debt payoff plan may help your overall financial picture. The goal is balance. You’re not just planning for your future self. You’re also taking care of the life you’re living right now.
Don’t forget emergency savings
As you focus on saving for retirement, try to build an emergency fund. An emergency fund can help you cover surprise expenses without immediately turning to credit cards or dipping into retirement savings.
The key with an emergency fund is to just set a target and make a simple plan. This is important for one very basic reason. Taking money out of your retirement fund early may lead to taxes, penalties, or lost growth potential. Keeping separate emergency savings may give your retirement money more time to grow.
How Social Security fits in
Social Security should be part of your retirement income, but it may not cover everything. The U.S. Department of Labor says Social Security retirement benefits replace about 40% of pre-retirement income on average for retirement beneficiaries, though the exact amount varies based on earnings and claiming age.
You can start claiming Social Security retirement benefits as early as age 62. It’s important to note that claiming early usually reduces your monthly benefit. The Social Security Administration considers 67 full retirement age for people born in 1960 or later, and benefits can even increase if you wait to claim, up to age 70.
That’s why saving for retirement on your own can be so important. Personal savings may help fill the gap between what Social Security provides and what you want your retirement to look like.
Look at the big picture
It’s a good idea to start saving for retirement as soon as you can. If you haven’t started yet, now is as good a time as any. The earlier you start, the more time your money has to grow.
You don’t need a complicated plan to begin. Just:
- Review your monthly budget
- Choose a starter contribution amount
- Sign up for your workplace plan, if available
- Increase your contribution over time
- Build an emergency fund alongside retirement savings
- Check your progress once or twice a year
While you’re building your plan, explore Best Egg Financial Health. It can help you get a clearer view of your finances and estimate how much money you’re spending today. Retirement may feel far away, but the choices you make now can help shape your financial future. And when you know more, you can do more.
This article is for educational purposes only and is not intended to provide financial, tax or legal advice. You should consult a professional for specific advice. Best Egg is not responsible for the information contained in third-party sites cited or hyperlinked in this article. Best Egg is not responsible for, and does not provide or endorse third party products, services or other third-party content.
