Retirement: The Importance of Starting to Save Early

If you’re like most younger people just starting a new job, you probably spend your time thinking about finding ways to move up the corporate ladder, not counting down the days until you retire.

But saving for retirement should be a consideration at this time in your life. One of the biggest advantages that you have at this stage is time.

 “The importance of getting started with saving for retirement cannot be overstated,” said Joe Correnti, senior vice president of brokerage product at Scottrade. “By saving for retirement early and often, you set yourself up much better for your future than if you choose to wait.”

Consider this scenario. Let’s say you’re 23 and want to retire at 67. You start with $5,000 at age 23 and you contribute an additional $5,000 at the end of each year. By age 67, you will have $1.1 million assuming a 6% average annual rate of return.

But let’s say you don’t start saving until you’re 35. Even if you double your contribution to $10,000 per year, you still wouldn’t have as much money at 67 as you would if you start at age 23.

Save What You Can

One rule of thumb is to save 10-15% of your gross income for retirement. But we get it. You have to worry about all of your day-to-day expenses, so maybe 10-15% is too much.

If that’s you, begin by saving something to get into the habit of paying yourself first. As your income increases, get into the habit of also increasing your retirement contributions.

Take Advantage of the Employer Match

If your employer matches your contributions to a retirement account, strive to put away the maximum amount of money possible to receive the full match. If you don’t, you’re leaving free money on the table. Plus, an advantage of putting money into a company-sponsored account is that the money is taken out before you have the opportunity to touch it first.

If you don’t have access to a company-sponsored retirement account, you may want to consider opening a Traditional or Roth IRA. You can search for “IRA contribution limits” on the IRS website to determine how much you can contribute annually. Consider making contributions automatically to your IRA account to help keep you from spending the money elsewhere.

It’s tempting to tell yourself that you can put off saving for retirement for a few years until your income grows to a manageable level. But it could be a mistake to think that saving will get any easier as you get older. Instead of money going to student loans and ramen noodles, your money will go to mortgages, child care, college savings and repairing that furnace that went bust in the middle of the winter. 

“Save early, save often and take full advantage of the time that’s on your side,” Correnti said. 

How much of each paycheck would you recommend placing into a retirement account?

Next Step: Want to know how much you’ll need for retirement? Check out Scottrade’s Retirement Calculator.

The information and content provided is for informational and/or educational purposes only. The information presented or discussed is not, and should not be considered, a recommendation or an offer of, or solicitation of an offer by, Scottrade or its affiliates to buy, sell or hold any security or other financial product, or an endorsement or affirmation of any specific investment strategy. You are fully responsible for your investment decisions. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances, and your investment objectives. Scottrade, Inc. and its affiliates are not offering or providing, and will not offer or provide, any advice, opinion or recommendation of the suitability, value or profitability of any particular investment or investment strategy.

More Articles & Insights

As You Look Toward Retirement, Keep Your Goals in Mind

Keeping your retirement goals top of mind is key to keeping your strategy on track, regardless of your age.

There’s Still Time to Save for Retirement

If you’ve fallen behind on your retirement savings, don’t sweat it. There are steps you can take to get on track.

Self-Employed Can Consider These 401(k) Alternatives

Self-employed individuals have access to tax-advantaged retirement plans designed specifically for them.