You might wonder at what age retirement investing should start. Most young Americans think retirement is too far off for them to worry about, but as they age, they wonder when they should start.
The simple answer is to start as soon as possible. For example, if you already have a full-time job with a company offering a 401K or are old enough to open an IRA, start now.
If you haven’t started and are well beyond 18 – 20 years old, don’t worry; it’s never too late to invest in your retirement.
Why You Should Consider Retirement Investing Early
You’re probably wondering why you’d think about retirement investing when you’re barely in your own place and living an ‘adult life.’
The more time your money has to earn more money, the more you’ll have in retirement. So even if retirement feels like it’s decades away, it will be here before you know it, and you’ll want to be prepared.
Here’s the difference between investing from age 25 to 55 and age 35 to 55 to demonstrate compound earnings.
If you both invest $10,000 a year at a 6% annual return, but you invest at 25, and your friend invests at 35, at age 55, you’d have the following:
- Investing at 25, you’d have $895,452
- Investing at 35, you’d have $421,999
Just by investing the same amount ten years earlier, you’d earn $473,453 more for retirement.
Retirement Savings by Age
While each person has different needs in retirement, here is the general rule of thumb regarding retirement savings by age.
- Save one times your salary by age 30
- Save three times your salary by age 40
- Save six times your salary by age 50
- Save eight times your salary by age 60
- Save ten times your salary by age 67
How much you need depends on many factors, including when you’ll retire (earlier or later), the type of lifestyle you’ll live, and how aggressively you invest. For example, if you have a low-risk tolerance, you may focus more on bonds and treasury securities versus stocks and commodities.
The more conservatively you invest, the more money you must invest each year to reach your retirement goals. On the flip side, the more aggressively you invest, the more time you need to compensate for any significant losses, such as a stock market crash.
The key is to start retirement investing as soon as possible. The earlier you start, the less you have to contribute each year and the more money you’ll have for retirement.
Don’t forget, you may be able to supplement your retirement income with an employer match on your 401K, Social Security income, and any pensions you’ve earned during your working years.