The Importance of Starting Early

Why start investing early for your retirement? Because the sooner you start investing, the sooner you may be able to retire.

When you begin investing early, you have the potential to build a more substantial nest egg—which may enhance your overall quality of life and provide more financial security when you retire.

Investing early can help you navigate and potentially minimize the impact of market fluctuations. You can also leverage dollar-cost averaging—where you regularly invest a fixed amount, regardless of market conditions—which may help you buy more shares during low-price periods.

Those who begin investing early can also tolerate more risk because, with a longer investment horizon, there’s more time to recover from market downturns. With this flexibility, you can allocate more of your portfolio to higher-risk, higher-reward investments, which may have the potential to increase your long-term returns.

The longer you wait to begin saving, the more you’ll need to save for a comfortable retirement.

For example, what if your goal is to save $1 million by the time you turn 65?

Here’s an example. John, who’s 25, decided to save $100 a week until he turns 65, when he plans to retire. If no major life event interrupts his ability to meet this goal—and if you assume a 7% annual rate of return—John will have saved just over $1 million by the time he retires.[1]

The amount you may need to save for retirement can be influenced by your current income and the lifestyle you envision for your retirement.

It is generally suggested that you save 15% of your pre-tax salary along with any employer match from age 25 to 67 to potentially maintain your current lifestyle in retirement.[2]

Now let’s talk about the benefits of compounding—and what compound interest means in terms of investing for your retirement.

Compound interest enables you to earn interest on the money you’ve saved and on the interest you earn along the way—so you earn interest on your interest.

Compound interest is generally most impactful over long durations, meaning the sooner you start investing, the greater opportunity your money has to grow.

Consider this example. Chris and Jennifer both plan to invest $100 a month at a 5% annual compound rate of return. Chris starts investing when he’s 25. He puts away $100 every month until he’s 65. Jennifer saves the same amount every month, but she starts when she’s 35. With just an extra 10 years of saving, Chris has about $162,000 in his retirement plan. By contrast, Jennifer has $89,000 by the time she turns 65, which is about half as much as Chris has saved.[3]

Understanding the importance of planning ahead and saving early—and how compound growth can help you save and invest appropriately—is key to helping you achieve your retirement goals.

Whether you’ve started planning well ahead of time or you’re just getting started, an experienced Financial Advisor can help you determine an investing plan to fund your retirement.

[1] DeVon, C., “Setting Aside $20 a Day Could Help You Save $1 Million For Retirement—if You Start Early,” CNBC, January 5, 20204 https://www.cnbc.com/2024/01/05/how-to-save-1-million-dollars-for-retirement.html

[2] Napoletano, E., “How Much Should You Save for Retirement?” Forbes, March 18, 2024 https://www.forbes.com/advisor/retirement/how-much-to-save-for-retirement

[3] Loudenback, T., “Here’s How Much More Money You’d Have for Retirement if You Saved $100 a Month Starting at 25 Instead of 35,” Business Insider, November 15, 2023 https://www.businessinsider.com/personal-finance/retirement-savings-start-at-25-vs-35-2019-4

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