The short answer to the question, “When should you start planning for retirement?” is now, regardless of your age. The waves of baby boomers crossing the retirement threshold each day offer a critical lesson for younger people who have yet to put retirement in their line of sight. If they had it to do again, nearly two-thirds of recent retirees would have started saving much earlier. But, instead, they may be among the more than 80 percent of Americans who don’t feel very confident about their ability to have enough money to live comfortably throughout their retirement years.

Average Age People Start Saving for Retirement

A report from Morning Consult reveals that less than 40% of adults start saving for retirement in their 20s. About 25% start saving in their 30s and 15% in their 40s. Six percent start saving in their 50s. Stunningly, half of the adults between 18 and 34 are not saving at all, nor are 42% of adults aged 35 to 44. 

The Cost of Waiting to Save for Retirement

Interestingly, we all start out in similar circumstances—with little money, lots of time, and an opportunity to retire financially secure. Yet, not everyone treats time as the valuable asset it is. You see, time is also a wasting asset, losing value passing day that money is not put to work. And, as the value of time is wasted, the cost of your financial goals increases, sometimes to the point where they become prohibitively expensive and unattainable. 

Consider the following chart:

Monthly Savings Needed to Accumulate

Starting at ageYears to age 65$50,000$100,000$250,000$500,000$1,000,000
2540$33$66$124$328$655
3035$44$88$220$440$880
3530$60$120$300$601$1,202
4025$84$168$420$840$1,679
4520$122$243$608$1,216$2,433
5015$187$374$935$1,871$3,741
5510$322$643$1,610$3,220$6,440
(Assumes an earnings rate of 5%.)

For a 25-year-old who wants to retire with a million dollars at age 65, the cost to do so is $655 a month (assuming an average rate of return of 5%). If he waits until 35 to start saving, the cost of saving for retirement nearly doubles. People who wait until 45 to begin saving must either save a more significant portion of their income each month or take much more risk, or both. 

Time Plus Compounding Interest Creates Magic

If you were given the choice of receiving $10,000 each day for a month or a single penny that doubled in value each day for a month, which would you choose? If you chose the former, you may feel kind of silly to learn that, at the end of a month, your $10,000 daily gift amounted to $300,000 while the doubling penny would have produced around $5 million. Such is the magic of compounding. 

To illustrate that magic, consider two friends, Allen and John, both age 25. The Allen starts saving $10,000 a year right away but stops at age 40. John starts saving $10,000 a year at age 40 for the next 30 years when both friends retire. Both earned an average annual return of 6%.

Allen invested just half the money as John, but he had the time to allow compounding to do its magic. 

It’s Never too Late to Start Retirement Savings

If you are in your 40s or 50s, you have less time to save for retirement, but there are still strategies you can use to get back on track. 

Invest more: That may be easier said than done for many people, but if you’re serious about financial security, you can find the money. One way would be to get into a retirement mindset now and start adjusting your lifestyle. You’ll likely have to downsize your lifestyle when you stop working, so why not do it now? Buy less house. Drive less car. Forgo a few things now so you can enjoy more of them later. In doing so, you can free up thousands of dollars each year that can go into your retirement plans. In addition, by smoothing out your consumption between now and when you stop working, you’ll have an easier transition into a retirement lifestyle. 

Max out your retirement plans: If you have access to a retirement plan at work, take advantage of the total matching contribution provided by your employer. Also, if you’re over the age of 50, you can contribute an additional $6,500 as a “catch up” contribution in 2021. If you have an IRA, you can make a $1,000 catch-up contribution. 

Keep the gas on your investment returns: Many people fail to reach their retirement goals because they don’t generate sufficient returns on their investments. In your 40s or 50s, you still have enough time for the stock market to go through several cycles. Work with a financial advisor to develop an investment strategy based on your return objectives and risk profile. A properly diversified portfolio can drive returns with less volatility. 

The key is to stick with the strategy and avoid the typical behavioral mistakes investors make, such as trying to time the market or chase performance. 

Start a side gig: If you have been harboring any ambition of starting a business or monetizing a hobby in retirement, get started now. It can take several years for any new venture to generate consistent income. However, with a part-time effort now, you can generate some extra income to boost your savings and, by the time you’re ready to quit your day job, you could have a going concern. 

While it’s never too early or late to plan for retirement, your biggest obstacle thus far has been procrastination. There’s no more giant dream killer than procrastination because it devours time. Remember, each day you wait to take action, the cost of your retirement goes up. So whether you’re 25 or 30 with an extended time horizon, or 40, 50, or 60, and on the glide path to retirement, Dechtman Wealth Management can help you develop a plan to optimize your time and resources for achieving financial security in retirement. Download A Guide to Having Enough Money in Retirement here.