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Retirement

The Early Bird Gets the… Money

The Baldwin Group
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Updated: April 24, 2024
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4 minute read

It might seem like retirement is far away, but the reality is that when it comes to retirement planning, it’s never too early to start. There are many benefits to investing in retirement as soon as you can, preferably as soon as you begin working. Building up the funds you’ll need for the lifestyle you want when you retire becomes more difficult the longer that you wait. Though you might not make as much money when you’re younger as when you advance in your career, you’ll have more time. Let’s take a look at some reasons why time is your best friend when you’re building up your retirement savings. Those include:

Compound interest

Compound interest is likely the greatest benefit of investing early in retirement. Though there’s no guaranteed set rate of return, when you start saving for retirement earlier, you’ll end up with more money with a smaller capital investment than if you wait until later in your career to start. Compound interest is the process of a sum of money growing significantly due to interest building upon itself over time.

For example, if you invest in $1000 in an account that grows five percent every year, you’ll have $1050 at the end of the year. The following year, you’ll see a return of five percent on $1050 dollars which would amount to $1102.50 after two years.

Financial flexibility

Putting off saving for retirement later in your career means that you’ll have to set aside a lot more money from your paycheck to have enough money to retire versus if you start in your twenties. Having to set aside $100 per month versus $1000 can make a big difference in how you manage your day-to-day expenses. And we can’t reiterate the value of compound interest enough here.

Have access to an employer-sponsored retirement plan? Take advantage of it as soon as you can. Most employers will match contributions up to a certain percentage, so if you’re not putting money into the plan, it’s like you’re throwing away free money toward your retirement.

Access to higher reward investments

Early investment grants you access to a more diversified portfolio. You have the time to tap into higher risk, higher reward investments. If you start saving in your thirties or forties, you have to stick to safer investments because it’s not a risk that you can afford the closer you are to retirement age. Being able to tap into investment opportunities with the potential of a great return is likely to give you a larger financial cushion when you retire.

Investing in your retirement early also increases the probability of your investments weathering market fluctuations successfully. If the market dips and you’re closer to needing your retirement funds, this means you’ll have less time to recover any money that’s been lost in a market dip.

Uncertainty of Social Security benefits

In the United States, the increased longevity of a fast-growing, aging population paired with decreased population growth means that more and more people will continue to turn to Social Security benefits. At one point, Social Security will be paying out more benefits than the amount of money that’s coming into the program, which negatively impacts the long-term viability of Social Security.

Many people account for Social Security benefits in their retirement financial planning. Considering how the future of Social Security is increasingly uncertain, people need to account for this possibility by saving more money for retirement earlier on in their careers.

Accounting for inflation

Inflation is a word that we’re hearing a lot recently, and it also impacts your ability to retire comfortably. It’s a reality we all have to live with throughout our lives and take into consideration when planning for retirement. People who start saving for retirement earlier on in their careers increase their chances of their retirement savings being able to keep pace with inflation.

Longer life expectancies

On average, people are living longer than before. Increasing life expectancy means that you’ll likely need more money to retire to be able to care for yourself when you’re no longer able to work.

Additionally, as you grow older, it’s also likely that your healthcare costs will increase. Though you have the option of tapping into Medicare benefits, you’ll still need to account for out-of-pocket expenses. With the cost of healthcare increasing year over year, you want to get a head start on your retirement savings.

In addition to saving for retirement as early as possible, it’s also important to determine how much you’ll need to save based on the life you want to live when you reach that milestone. To ensure that you’re taking the right steps toward reaching your goals, work with an experienced financial advisor who can help you map out a plan that aligns with current monetary picture and long-term financial goals.

Start planning your retirement path today with our experienced advisors.


Tags in this resource

financial planning investment retirement planning savings Social security
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