Planning for retirement no longer starts at age 50. Instead, a recent study shows that those who begin saving money for retirement in their 20s are 66% more likely to expect an early retirement than those who start saving in their 30s, due in part to the effects of compounding.
MoneyRates.com analyzed survey results of 1,900 American adults age 25 or older, and found that just 27% of respondents began saving for retirement in their 20s, and that barely half began saving before age 40.
But saving early is key to funding an early retirement, as those savings compound over the course of decades, said Richard Barrington, senior financial analyst for MoneyRates.com and author of the study, in a written statement.
“Saving for retirement is a big job, so the way to make it a little easier is to spread it over a greater number of years,” Barrington said. “This gives you more time to accumulate savings, and a longer period to let the compounding of investment returns work for you.”
The survey also shows that women start saving later than men: Only 25% of women began saving for retirement in their 20s, compared with 30% of men. However, just 57% of women expect to retire by age 70, compared with 78% of men.
“Women may have more trouble saving because they earn less on average, and this creates the additional burden of greater retirement uncertainty,” Barrington said. “Whatever your income, making any effort you can to start saving for retirement is the best way to fight against that uncertainty.”
Americans who don’t begin saving by age 40 may have additional trouble getting started, according to the survey. The percentage of respondents who reached age 40 with no retirement savings (29%) is comparable to the percentage of respondents who reached age 50 (30%) and age 60 (29%) with no retirement savings.
To read the study, click here.
Written by Emily Study