Saving for Retirement at Different Ages

When should you start saving for retirement? The best answer is “right now”! It is not too early to begin nor is it generally too late, although the manner and method of savings will likely vary, depending on your stage of life. Here is a snapshot of what things may look like at different stages of life.

The early years: For most people, your first starting salary does not provide much room for savings. But it is still important to develop good saving habits. For instance, if you work at a company that provides matching contributions to a 401(k), be sure to take advantage of the company match. Otherwise, you are leaving money on the table that may provide valuable income in retirement. Furthermore, you might be surprised to find out how much an impact tax-deferred compounding can have over a long period of time.

The middle years: When you are in the middle of your working career, other obligations—such as buying a home, raising your children and building up funds to help pay for their educations—often take priority. Nevertheless, do not take your eye off the ball. To the extent possible, continue utilizing company retirement plans, IRAs and other savings vehicles. Note that a Roth IRA may provide tax-free payouts in retirement for qualified distributions (e.g., those received after age 59½). If you are rewarded with a raise, try to allocate at least part of it to your retirement savings plan.

The late years: This time of life may provide more opportunity for saving if the house is paid off and the kids are out of school. Also, you may benefit from seniority and career advancement, so your earnings could be higher than ever or near their peak. If you have not been as diligent through the years as you would have liked (see “the middle years”), it is still possible to build a sizeable nest egg for retirement. The basic principles of using retirement plans and IRAs for tax-deferred growth remain.

Finally, don’t think that saving for retirement ends once you have retired. At this time, you must make some serious decisions and assess both your expected income and expenses. For instance, one major decision is when to take Social Security benefits so you are able to maximize the payouts. Also, you might decide to keep working past the age for receiving full Social Security retirement benefits (ranging between 65 and 67 years, depending on your year of birth).

In summary: Due to longer life expectancies, you may need more retirement income than you initially imagined. There is no time like the present to start building your nest egg.