Is It Too Early To Save For Retirement?

When should you start saving for your retirement? Your 40s? Your 30s? 20s?

The best time to start is actually your 20s. This may seem very early to start thinking about retirement, but there are advantages to starting a pension pot early.

• Saving up money earlier could give you the chance to retire earlier. Instead of retiring in your 60s, you could consider retiring in your 50s – or even your late 40s.
• Saving up money earlier could alternatively allow you to save up more money for retirement so that you can truly enjoy your latter years without worrying about money.
• Alternatively, it could simply allow you to save up money in smaller installments, giving you more disposable income from month to month.

In other words, don’t wait until your 30s and 40s. There are clear benefits to getting your retirement fund started early.

How much should I contribute each month?

How much you save each month is up to you. Most people aim to be able to live off 70% of their pre-retirement income per year. In other words, if you’re making $100k annually when you retire, you’ll want to save up enough so that you have $70k to live off per year in retirement. 

A retirement calculator can help you to work out exactly how much you should be contributing each month. You can find these tools online.

Where shall I put my savings?

There are a few different retirement account options. It’s worth taking the time to explore all your options – certain accounts may have better interest rates, better tax advantages and greater maximum annual contributions.

IRAs (Individual Retirement Accounts) are one of the most popular options. The APY of these accounts is typically between 0.15 and 0.95%. You can put in up to $6000 per year (and an additional $1000 once you reach over 50).

Your employer may offer you a retirement account known as a 401(k). You can contribute as much as $19,500 per year into this (and an additional $6,500 per year past the age of 50). The average annual return on a 401(k) is about 5% to 8%.

There are of course many other options such as investing in stocks, bonds and crypto. A wealth management company can help you to find the best way to not just save money for retirement but invest these savings. The larger return you can make on your savings, the more you’ll save up without having to make extra contributions. 

What if I choose to wait?

If you wait until your 40s or 50s to start planning for retirement, you could struggle to save up enough before you retire. At this point, you’ll likely have to make bigger monthly contributions to make your target, which could eat away at your disposable income. Saving for retirement shouldn’t mean having to make cutbacks during your pre-retirement years.

Of course, if you’re already in your 40s and 50s it’s still not too late to start saving. Having a retirement fund is better than no retirement fund. High growth investment strategies could be the best option – they’re a little riskier but you’ll grow your funds faster.