When should I start saving for retirement?

With rising healthcare costs, longer life spans, the demise of employer pensions, and increasing uncertainty about the future of Social Security, there’s more responsibility than ever for you to take control of your own financial future. Take the first step: save for retirement as soon as you can. By contributing regularly to a 401(k) as early as possible, you can better ensure a comfortable, stress-free retirement.

The earlier you begin saving, the more time your money has to work for you. Remember, time is on your side. Your 401(k) is designed for compound growth over time, so any amount of money you save is worth more the sooner it is received.

For example:

*Assuming a 6% annual return. Source: www.irs.gov

As illustrated above, if you save $50 per month in an account that earns 6% per year, after five years the account will have just $506 over the $3,000 you contributed (you’ve made $506 from reinvested gains). After 20 years, your account will have earned $11,218 in addition to your total $12,000 contribution - nearly double your money! (Of course, performance can’t be guaranteed and your investments could lose value).

Even if retirement is the furthest thing from your mind, if you start saving now and resist the urge to withdraw from your 401(k) before you retire, you can sit back, relax, and let compounding interest work its magic over time.

How easy is that?

But what about Social Security?

Social Security will only replace a small portion of your income. For most people, it will only replace about 29% of their salary upon retirement.

For example, if your average annual salary throughout your working life was $46,290, Social Security will pay you a mere $13,238 per year when you retire. (This is assuming payable benefits for a worker born in 1985 and retiring at age 65 in 2050, with a career average salary of $46,290). If your career-average annual salary was higher than that, Social Security will cover even less upon retirement, since benefits are capped at a certain level.  

To get a rough estimate of monthly benefits you might collect when you retire (based on date of birth and earnings history), check out the Social Security Administration’s Quick Calculator. This can be a useful tool for comparing potential benefits with your current monthly expenses.

So, when’s the best time to start saving for retirement? Right now! Take advantage of the benefits of a 401(k) account today and start contributing. With the possibility of matching contributions from your employer and potential tax deferments, you have little to lose and a lot to gain. And with Guideline’s hassle-free, fully automated payroll contributions, you’ll hardly notice the small portion missing from each paycheck, while you watch your nest egg steadily grow.