A new survey from Bankrate revealed a concerning statistic regarding America’s savings plans. According to the study, 1 in 5 American workers did not contribute anything1 to their retirement savings this year or last year. Even more troubling is the fact that this is highest it’s been since Bankrate began polling retirement data in 2011. For most of us retirement feels like the distant future. Goals for how much to save vary from person to person. One constant piece of advice, however, is that the longer you wait to start saving, the less you will actually have when the time comes. It sounds simple because it really is. Here’s why now is the best time to get the savings snowball rolling.
Get ahead of the pack
The U.S. Department of Labor estimated fewer than half of Americans have actually calculated what they need to save for retirement. In addition, it cites the average length of retirement as being about 20 years long. That’s nearly a quarter of the average person’s lifespan. Despite being a significant portion of one’s life, many don’t think about how to save until it’s too late. But why should a recent college graduate start planning for something 40 years in the future? Joe Udo at U.S. News Money explained this conundrum quite simply: compounding interest.2
“The earlier you start saving for retirement, the longer your retirement account will have a chance to compound and the more you will have for retirement,” he wrote.
That means every year you don’t contribute to your retirement fund could cost you several years’ worth of money down the road.
It’s easier than you think
Saving enough to live comfortably for 20 years without working may sound impossible, but once you learn about the many ways to begin saving, it can be a breeze. Many employers offer a 401(k) or pension plan, and some will even match the amount you contribute each month. You can also open your own Individual Retirement Account (IRA), which can be set up regardless of your employer. Both of these plans are exempt from taxes until you withdraw your money, and they can both be funded with automatic deductions from your paycheck. There are other caveats and restrictions3 for each plan, as well as countless alternatives. But these two simple ways to save have helped millions live comfortably after they’ve stopped working for a living.
What are you waiting for? Start researching your retirement options and set aside a small amount of money each month. When you’re saving over a lifetime, a dollar goes a long way.
The views expressed by the articles and sites linked in this post do not necessarily reflect the opinions and policies of Cash Central or Community Choice Financial®.
1Dixon, Amanda. (2019, Mar 14). Retrieved from: https://www.bankrate.com/banking/savings/financial-security-march-2019/
2Udo, Joe. (2011, Sept 1). Retrieved from: https://money.usnews.com/money/blogs/on-retirement/2011/09/01/the-importance-of-saving-early-for-retirement
3Coombes, Andrea and Yochim, Dayana. (2023, May 31). Retrieved from: https://www.nerdwallet.com/article/investing/ira-vs-401k-retirement-accounts