When Should You Start Saving for Retirement? (Spoiler: Yesterday)

I hear this question all the time from young families: "When should I start saving for retirement?"

My answer is always the same: Yesterday.

If you didn't save yesterday, then today. Right now. Not next month. Not after you pay off the credit card or buy the new car or finish the kitchen renovation.

Now.

Let me explain why timing matters so much when it comes to retirement savings—and how to start even if you're already "behind."

The Magic of Compound Interest

The single biggest advantage you have in building retirement wealth is time.

Thanks to compound interest, money saved early grows exponentially more than money saved later—even if you contribute less total.

The Tale of Two Savers

Let me illustrate with a classic example.

**Early Emma** starts saving at age 25. She contributes $5,000 per year for 10 years, then stops completely. Total contributions: $50,000.

**Late Larry** waits until age 35 to start saving. He contributes $5,000 per year for 30 years straight. Total contributions: $150,000.

Both earn 8% annual returns. Who ends up with more at age 65?

Early Emma: $787,000 Late Larry: $566,000

Emma contributed $100,000 LESS but ends up with $221,000 MORE.

This is the power of compound interest. The growth compounds on itself, year after year. The earlier you start, the more time your money has to multiply.

The Cost of Waiting

Every year you delay saving for retirement is a year of lost compound growth.

Let's say you're 30 years old and want $1 million at age 65 (35 years from now). Assuming 8% annual returns:

**If you start now:** Save $586/month **If you wait 5 years:** Save $960/month **If you wait 10 years:** Save $1,550/month **If you wait 15 years:** Save $2,600/month

By waiting just 10 years, you nearly triple the monthly savings required to reach the same goal.

This is why I'm so adamant about starting early. Not because I think everyone in their 20s should be retirement-obsessed. But because the math is undeniable: time is your most valuable asset.

But I Have Student Loans / Credit Card Debt / A Mortgage...

This is the most common objection I hear. "I'll start saving for retirement once I pay off my debt."

I understand the appeal of this logic. Debt feels urgent. Retirement feels distant.

But here's the truth: For most people, the right strategy is to do both simultaneously.

When to Prioritize Debt Payoff

Pay off high-interest debt (credit cards, payday loans, anything over 8-10% interest) before aggressively funding retirement.

Why? Because debt at 18% interest is mathematically worse than missing out on 8-10% investment returns.

**The sequence for high-interest debt:** 1. Contribute enough to get your employer's 401(k) match (this is an instant 50-100% return) 2. Build a small emergency fund ($1,000-$2,500) 3. Aggressively pay off high-interest debt 4. Once high-interest debt is gone, resume retirement contributions

When to Balance Debt and Retirement Savings

For lower-interest debt (federal student loans, car loans, mortgages—anything under 6%), you should generally save for retirement while making minimum payments on the debt.

Why? Because over the long term, your investments will likely earn more than your debt costs you.

Plus, you can't get back the years of compound growth you miss while waiting to become debt-free.

**Example:** You have $30,000 in student loans at 4.5% interest. You could aggressively pay these off in 3 years, or make standard payments over 10 years while investing the difference.

If you invest the difference at 8% returns, you'll end up with significantly more wealth even after accounting for the extra interest paid.

(Note: This is purely a math-based decision. Some people prefer the psychological benefit of being debt-free. That's a valid choice too.)

How Much Should You Save?

The standard recommendation is to save 15% of your gross income for retirement.

This assumes: - You start in your late 20s or early 30s - You want to maintain a similar lifestyle in retirement - You'll retire around age 65-67

If you start later, you'll need to save a higher percentage.

The Formula Based on When You Start

**Start at age 25:** Save 15% of gross income **Start at age 30:** Save 15-18% of gross income **Start at age 35:** Save 18-22% of gross income **Start at age 40:** Save 22-28% of gross income **Start at age 45:** Save 28-35% of gross income **Start at age 50:** Save 35%+ of gross income

These percentages assume you're starting with zero retirement savings. If you already have some money saved, you may need less.

What Counts Toward the 15%?

- Your contributions to 401(k), 403(b), or similar workplace retirement plans - Your employer's matching contributions - Contributions to Traditional or Roth IRAs - Contributions to SEP-IRAs or Solo 401(k)s if self-employed

**Example:** Your gross income is $80,000. You contribute 10% ($8,000) to your 401(k). Your employer matches 5% ($4,000). Total retirement savings: $12,000, which equals 15% of your income. You're on track.

Where to Start: Your Retirement Savings Roadmap

If you're new to retirement saving, here's the step-by-step approach:

Step 1: Contribute Enough to Get Your Employer Match

If your employer offers a 401(k) match, contribute at least enough to get the full match. This is free money—an instant 50-100% return on your investment.

**Example:** Your employer matches 50% of contributions up to 6% of your salary. Contribute at least 6% to get the full match.

Step 2: Build an Emergency Fund

Before aggressively funding retirement, save 3-6 months of expenses in a high-yield savings account. This prevents you from raiding your retirement accounts in an emergency.

Step 3: Max Out Roth IRA (If Eligible)

After getting your employer match, consider maxing out a Roth IRA ($7,000 per person in 2024).

Why the Roth? Tax-free growth, tax-free withdrawals in retirement, more investment flexibility, and you can access contributions (not earnings) before retirement if needed.

Step 4: Return to Your 401(k)

After maxing the Roth IRA, increase 401(k) contributions to reach your target savings rate (15-20% of gross income).

Step 5: Consider Additional Strategies

If you're maxing out 401(k) and IRA contributions and want to save more, consider: - Taxable brokerage accounts (invest in tax-efficient index funds) - Health Savings Account (HSA) if you have a high-deductible health plan—this is a stealth retirement account - Mega backdoor Roth (if your 401(k) plan allows)

Starting Late? Don't Panic

If you're reading this and you're 40 or 50 with little to no retirement savings, don't despair.

You're behind—but you're not hopeless.

Here's what to do:

Action 1: Start Immediately

Don't wait another month. Open an account this week and start contributing, even if it's just $100 per month. Build momentum.

Action 2: Increase Your Savings Rate Aggressively

Aim to save 25-35% of your gross income. Yes, this is a lot. But it's doable with focused effort: - Maximize 401(k) contributions - Max Roth IRA contributions for both spouses - Use catch-up contributions if you're 50+ ($7,500 additional in 401(k), $1,000 additional in IRA)

Action 3: Plan to Work Longer

Instead of retiring at 65, consider working until 67 or 70. This gives you: - More years to save and invest - More years for investments to grow - Higher Social Security benefits - Fewer years that your savings need to last

Working just 3-5 years longer can dramatically improve your retirement security.

Action 4: Optimize Social Security

Delay claiming Social Security until age 70 if possible. Your benefit increases about 8% per year between age 67 and 70.

For someone with a $2,000/month benefit at 67, waiting until 70 increases it to about $2,480/month—for life. Over a 25-year retirement, that's an extra $144,000.

Action 5: Consider Downsizing or Relocating

If you own a large home, consider downsizing and investing the difference. If you live in a high-cost area, consider relocating to a lower-cost state in retirement.

Common Mistakes That Derail Retirement Savings

Mistake #1: Cashing Out 401(k)s When Changing Jobs

When you leave a job, roll your 401(k) into an IRA or your new employer's plan. Don't cash it out. The taxes and penalties will devastate your retirement savings.

Mistake #2: Not Increasing Contributions with Raises

Every time you get a raise, increase your 401(k) contribution by half the raise amount. You'll barely notice the difference in your paycheck, but your retirement savings will soar.

Mistake #3: Investing Too Conservatively When Young

If you're 30 years old and your 401(k) is 50% bonds, you're being too conservative. You can afford to take on market risk when retirement is 30+ years away. Aim for 80-90% stocks in your 30s and 40s.

Mistake #4: Trying to Time the Market

Don't wait for the "right time" to invest. Don't stop contributing because the market is down. Consistent contributions through market ups and downs (dollar-cost averaging) is the winning strategy.

Mistake #5: Paying High Fees

A 1% difference in investment fees can cost you hundreds of thousands of dollars over a career. Use low-cost index funds whenever possible. If your 401(k) only offers expensive actively managed funds, invest enough to get the match, then prioritize IRAs and other low-cost options.

How Much Will You Need in Retirement?

A common rule of thumb: You'll need 10-12 times your final salary to retire comfortably.

**Example:** If you earn $100,000 in your final working years, aim for $1-1.2 million in retirement savings.

This assumes: - You'll spend about 80% of your pre-retirement income in retirement - You'll withdraw about 4% of your portfolio annually (the "4% rule") - You'll receive some Social Security benefits

Every situation is unique. Some people need less (paid-off mortgage, modest lifestyle). Some need more (expensive hobbies, health issues, supporting family members).

Action Steps to Start Today

**1. Calculate your current savings rate** Total annual retirement contributions (yours + employer match) ÷ gross income = savings rate

**2. Open accounts if you don't have them** - Enroll in your employer's 401(k) this week - Open a Roth IRA with Vanguard, Fidelity, or Schwab

**3. Set up automatic contributions** Automate your savings so it happens without thinking about it.

**4. Increase contributions by 1% per year** Commit to increasing your savings rate by 1% annually until you hit 15-20%.

**5. Review beneficiaries** Make sure your retirement accounts have up-to-date beneficiary designations.

The Bottom Line

The best time to start saving for retirement was 10 years ago. The second-best time is today.

Every month you wait is money you're leaving on the table—not just the contributions you miss, but decades of compound growth on those contributions.

You don't need to have everything figured out. You don't need a perfect plan. You just need to start.

Open an account. Contribute something. Increase it over time.

Your 70-year-old self will thank you.

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Michelle Schee is a CERTIFIED FINANCIAL PLANNER™ professional serving families in Texas. This article is for informational purposes only and should not be considered personalized financial advice.