Think your finances are too strapped to set aside money for retirement? Consider this…
Assume that on January 1 of each year a $5,000 contribution is made to a retirement savings plan. If implemented at age 25 and continued to age 70, retirement savings would total $1,641,122. If implemented at age 35 and continued to age 70, the retirement savings would total $796,687.
In this scenario, it is also assumed that the plan is tax-deferred (tax is paid when withdrawn) and that the plan earns a 7% rate of return every year.
Why the staggering difference? Compounding.
Over time, a retirement savings plan that is well invested will generate earnings from previous earnings.
Prioritizing financial responsibilities such as paying off debt, saving for a home, starting a business or a family and contributing to a retirement plan can be difficult. Consider the scenario above; tightening the wallet and saving today can mean a significant lifestyle difference during retirement.
Still think you do not have the cash to save for retirement?
Don’t despair if retirement savings has not been a priority. It is never too late to begin saving.
For the younger demographic, getting started with your saving is priority number one, even if it is only $25 a week. Treat it like a bill. If you have it coming out of your paycheck automatically, you won’t miss it as much.
For individuals age 50 and over, additional savings opportunities known as “catch-up contributions” are available.
Individuals who wait until they are 45 to set aside savings for retirement are not in dire straits. They have a few things working for them. Midlife is likely the peak earning years, bringing these individuals closer to paying off a mortgage. There might not be the burden of student debt that exists for other age groups.
By controlling spending and debt, there is an opportunity to move part of your budget to max out retirement savings plans.