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When should I start saving for retirement?

When you should start saving for retirement is simple – the sooner, the better. The sooner you start saving, the more time your money has to work for you. (Thanks to compound interest!) But it’s never too late to start saving for retirement.

When talking about saving for retirement remember:

• What to save for retirement is different for everyone
• 3 tips to tackle budgeting for retirement
• Other retirement savings options

Sooner is better than later - later is better than never

Best case for retirement

You start saving for retirement with your first job. If your company offers a match for a retirement fund, you put in as much as the match will allow. The more you can contribute to your long-term saving's when you’re younger, the more opportunity you give for your money to try to work for you.

It’s all thanks to compound interest: A = P (1 + r/n) ^ nt:

Where:

A = Future value of the investment, including interest
P = Principal investment amount (the initial deposit)
r = Annual interest rate (decimal)
n = Number of times that interest is compounded per year
t = Number of years the money is invested for

What does that mean?

If at 25 you put $3,000 a year in a tax-deferred retirement account for 10 years with a 7% annual return.

At 65, you’d have $338,000.

Even though you didn’t contribute a dime beyond age 35.

Current reality for retirement

Say you’re 35. Between grappling with mounds of student loan debt, trying to balance bills and maybe saving for your first home, you’re finally feel like you should start saving for retirement.

If you used the same savings plan and strategy to start as you had if you were 25, this is how it would shake out.

Saving $3,000 a year (every year) for 30 years on an account with a 7% annual return. You continue adding in $3,000 every year until you turned 65. You’d have about $303,000.

Moral of the story – Saving a little now can mean a lot later. It’s never too late to start saving.

How much should I save for retirement?

Everyone’s financial situation is different. Spend, save, share is an outline where your money could be going.

Breakdown:

• Spend: 70% of your income on needs
• Save: 25% for both long-term and emergency savings
• Share: 5% back to help support the community

Of the 25% outlined for savings, up to 15% could be going towards retirement. However, this guideline could change depending on what age you start saving, what kind of account it is, your rate of return, etc.

How to get there

It all starts with a budget. Because whether you want to save $100 each month or a $1,000, you need to know where your money is going.

2 tips to tackle your budget

• Review your bills
• Check out our Free budget worksheet

How long will it take for my money to double?

If you are just putting money in a savings account, it’s going to take a while. This type of saving is perfect for short-term savings goals and emergencies. Accounts like Bonus Saver can help you reach those short-term goals even quicker.

For long-term savings like retirement, you are going to want to earn compound interest.

Use the rule of 72. Take the number 72 and divide it by the interest you could be earning. The answer is the number of years it will take to make your money double.

So, if an account earns 2% annually, it would take 36 years to double.

72 ÷ 2 = 36

Imagine if you deposited $1,000 when you were 18. If you earned 2 percent on the account, it would take you 36 years to double it to $2,000. (Since 72 divided by 2 is 36.)

What are my retirement savings options?

Retirement savings is synonymous with 401Ks, but that is just one type of accounts that may be offered by employers. If you’re looking to have a bit more flexibility with your long-term savings accounts or want to help support your retirement, Numerica offers the following:

A Money Market which gives you a savings account with competitive rates on higher balances. You can make up to 6 transactions per month.

A Certificate is another option with steady rates without the market swing. Certificate rates tend to be higher than traditional saving accounts.

IRAs let you deposit up to $6,000 per year if you’re under age 49 or $7,000 over age 50.

Let’s talk about your options! Visit your favorite Numerica branch.