If You Start Saving for Retirement at 35 Instead of 25, Here’s Exactly How Much It Costs You
It’s no secret that saving for retirement early can set you up for future financial stability. But just because it’s a smart move doesn’t mean everybody can do it.
When you’re just starting with your adult life, you might not have the cash to spare. You might not even be thinking that far ahead.
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But what happens to your potential retirement fund when you wait to start saving until you hit your 30s? What kinds of gains could you be missing out on?
Here’s the math.
How Much You Could Have at Age 65
Before you can determine how much you’d have saved at various ages, you first need to understand the kind of returns you’re earning.
Assume you invest in the stock market, specifically the S&P 500, through index funds. Since 1957, the average annual stock market return has been 10.51%. Adjusted for inflation, that return is about 6.65%.
Now assume you invest your entire retirement portfolio in stocks — though in practice, you likely would be more diversified. Here’s how much you’d have by age 65 if you saved $100 consistently every month:
Started at 25 (40 years of savings): $228,104 ($48,000 total contributions; $180,004 in interest)
Started at 35 (30 years of savings): $110,946 ($36,000 total contributions; $74,846 in interest)
By starting at age 25 — just 10 years earlier — you would have accumulated an additional $117,158 by retirement. These figures assume an average annual return of 6.65%, adjusted for inflation.
How Much You’d Have If You Invested in a 401(k)
If you’re looking at retirement, you’re probably going to contribute to a tax-advantaged account. For many people, this will be either a 401(k) or an individual retirement account (IRA). Some people will contribute to both.
Fidelity suggests saving 15% of your pre-tax income each year for retirement. The real median personal income is $45,140, according to FRED data. What this means is you’ll save $6,771 annually, or $564 monthly.
Say you save that amount in a 401(k) from now until you turn 65. Here’s what your retirement account balance could be with a 6.65% average annual return rate:
Started at 25: $1,279,663 after 40 years (assuming no employer match)
Started at 35: $622,122 after 30 years (assuming no employer match)
That’s nearly twice the savings just by starting at age 25.
These figures assume no employer match. They also assume no salary or contribution percentage increases.
How Much You’re Really Losing By Waiting To Save
So, how much are you really missing out on if you wait to start saving until you turn 35?
“It's more than people think because you're not just missing 10 years of saving,” said Steve Sexton, CEO of Sexton Advisory Group. “You're missing 10 years where your money could have been compounding. I've run this with clients before, and starting at 25 versus 35 can realistically mean ending up with close to double by retirement, even if the monthly amount is the same.”
Of course, actual earnings and technical losses depend on several factors. This includes the type of account, or accounts, you use and the average returns.
You Can Still Make Up for Lost Time
Even if you don’t start saving in your 20s, try not to fret. You can still make up for it later.
“It's never too late to start investing. I didn't start until age 36. I contributed the minimal amount to get the company match,” said Barry Cothran, president and chief visionary at Vision and Hope Financial, LLC. “Eight years later, I checked a box on the 401(k) form that said ‘Automatic 1% annual increase’ in contribution. For 17 years, I never unchecked that box. That made the difference between average savings and a seven-figure portfolio.”
Other ways to boost your retirement savings include:
Increasing your contributions (manually or automatically)
Taking advantage of a higher employer match
Maxing out your retirement accounts as often as possible (including your IRAs)
Being consistent and persistent
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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