…According to a government report published last year about half of households age 55 and older do not have an IRA, 401k or other savings for retirement…and that even those with some retirement savings…[would find that] their nest egg would not take them all that far.
The median retirement savings is about:
- $104,000 for households aged 55 to 64 (equivalent to an inflation-protected annuity of $310) and
- $148,000 for those between 65 and 74 (equivalent to an inflation-protected annuity of $649 per month)
which seemed to argue that the majority of Americans approaching retirement risk not having adequate financial resources to maintain their current standard of living.
Select financial resources for all households age 55 and older
Saving for retirement today and start compounding your returns
When should you start saving for retirement? Financial advisors say it is never too early to drop a chunk of your monthly paycheck into a retirement account – and ideally in your 20s when you start earning a steady paycheck. The compounding effect of money can be very powerful especially over a long period (see graph below).
Your nest egg can start to get quite big as you reinvest the returns from your initial investment that then generate their own returns…$5,000 invested at 10% annually for 30 years with you adding $250 monthly to this pot should grow to more than $580,000 – which puts you ahead of most Americans today in or close to retirement.
Plug some ballpark numbers into this simple compound interest calculator and see where you might end up if you put aside a few hundred dollars each month.
Benefits of saving and investing early
If you need more reasons to start saving for your golden years, consider the potential tax benefits of contributing to a retirement savings account.
- One vehicle is the traditional IRA which is a tax-deferred investment that delays the tax hit until you withdraw the funds in retirement. You may be able to deduct your IRA contribution from your taxable income depending on your income level and whether you or your spouse is covered by a retirement plan at work.
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