When should you start saving for retirement?

When should I start saving for retirement? If you like planning ahead, you’re probably already asking yourself this question. You might be waiting to start saving for retirement at 30, once you’re more established in your career, but you could begin saving even sooner.

In fact, the sooner you start saving, the better. Putting money into a retirement account as early and consistently as possible will give your savings more of a chance to grow during your working years.

Why save for retirement?

The future is unpredictable, but having retirement savings is a likely necessity for most people. Social Security payments—distributed to those who are at least 62 years old and who worked jobs in which they paid Social Security taxes for 10 years or more—probably won’t be sufficient to cover all of your expenses in retirement, especially as the cost of living increases.

If you want a comfortable retirement, particularly if you plan to travel a lot, you’ll need a solid retirement fund. Your retirement savings can even be a reliable source of passive income if you choose the right saving plans for your situation.

When should you start saving for retirement?

Even if retirement feels like an eternity away, you shouldn’t wait to save for it.

“You should start saving for retirement as soon as you are able to,” recommends Michelle Schroeder-Gardner, founder of the Making Sense of Cents website. “There is no need to wait. Even if you have just a little bit to save each month, I still recommend going for it.”

One reason it’s wise to start saving as early as possible is that it helps to establish a savings habit. But more importantly, starting to save early gives your funds as much time as possible to grow.

“Compound interest means the money you invest for retirement has the potential to grow over decades,” Schroeder-Gardner says. “Plus, saving early can get you in a great mindset so that you aren’t too afraid to start later because you have already started!”

Compound interest allows your savings to grow exponentially, as earned interest is added to the base amount when calculating future interest. That means even a small amount of early savings can multiply significantly by the time you retire.

How many young people are saving for retirement?

While many Americans say they are behind on their retirement savings, younger people often express less concern.

According to a recent Bankrate survey, 56% of respondents said they were behind on their retirement savings.

Per the survey, a majority of baby boomers (60%) said they were behind on their retirement savings, compared to 49% of millennials and 42% of those in Generation Z.

Gen Z workers were the least likely to have contributed to their retirement plan in the last year. Could it be that most Gen Z respondents don’t believe they must contribute now to stay ahead of their retirement goals? Or could it mean that they don’t know how to begin? If you wait to start saving for retirement at 30, your older self may regret it.  

It’s simple to get started. Let’s discuss how you can begin saving for retirement in your 20s.

When should I start saving for retirement, and how can I do so?

It’s simple enough to start saving for retirement. First, you should make a monthly budget by subtracting your expenses from your income. Now, you can take a portion of what remains to set aside for retirement.

But it’s not enough to start saving for retirement. You need to find a way to keep saving consistently.

“You can start by setting up automatic transfers from your paycheck or bank account to your retirement account, essentially paying yourself first so that your retirement is consistently being thought about and saved for,” Schroeder-Gardner says.

Once you’ve automated your retirement savings, you can focus on other priorities while your funds grow. Alternatively, you can pay closer attention to how your retirement savings are invested. 

“An index fund is an easy way to get started, instead of an individual stock, so that you have hedged your risk by being more diversified in the stock market,” Schroeder-Gardner suggests. An index fund is an investment fund that investors can use to invest in a pooled collection (or “index”) of stocks, like the S&P 500 index of large-cap securities or the Nasdaq-100 index of large technology-centric stocks. 

You should also consider speaking to a retirement planning professional if you’re looking to create a personalized investment strategy.

What type of retirement account should I use?

You can use different types of retirement accounts and financial products to grow your savings, but if your job offers a 401(k), that’s a great place to begin.

You can deposit a percentage of each paycheck into your 401(k), and your employer may match your contribution up to a certain percentage. “See if your employer offers a match on 401(k) contributions,” Schroeder-Gardner suggests. “This is an easy way to get started, and it is essentially free money if your employer offers a match.”

Even if your job doesn’t offer a 401(k), you can open a tax-advantaged savings account on your own. Like 401(k)s, these Individual Retirement Accounts, or IRAs, come in two varieties: Traditional and Roth.

Traditional IRAs use pretax funds but require you to pay taxes when you make a withdrawal. Roth IRAs, on the other hand, use post-tax funds, but you won’t have to pay taxes when you withdraw. The type of IRA—or 401(k)—you choose should depend on your finances and how you think your tax burden will change over time. It’s wise to consult a tax expert about your specific situation.

You may also want to diversify your retirement portfolio beyond typical mutual funds. For example, consider investing a portion of your savings in an IRA CD, or certificate of deposit, or an IRA Savings Account. CDs offer a guaranteed return at the end of a preset term, making them a reliable addition to your retirement plans, while IRA Savings Accounts provide the flexibility of a traditional savings account with the tax benefits of an IRA. 

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How much should you be saving for retirement?

The amount you should save each month for retirement varies depending on your income, the sort of retirement you envision, and how close you are to retirement.

“As a general guideline, aiming to save around 10% to 20% of your income is a great starting point,” Schroeder-Gardner says. “However, if you don’t have that amount, try not to become overwhelmed by that goal. Just start with what you can.”

Even if you aren’t yet worried about whether you’ll be ready for retirement, you don’t want to disregard your savings, or you’ll struggle to catch up later in life. For example, someone who begins saving $100 a month at age 25 could potentially accumulate more savings by age 67 than someone who starts saving $400 a month at age 45. That’s due to the power of compounded returns and the impact of investing through tax-advantaged retirement accounts. 

What if you fall behind on retirement savings?

While it’s a good idea to start saving for retirement as early as possible, that advice isn’t helpful if you’ve already fallen behind and are quickly approaching retirement age. Fortunately, there are ways you can catch up on your retirement savings.

“If you are behind on retirement savings, don’t panic,” Schroeder-Gardner says. “You can start by creating a detailed budget to see areas where you can cut back, and then put these savings toward your retirement.”

If you’re over age 50, the IRS allows you to make additional “catch-up contributions” to your retirement accounts.  

“If possible, max out contributions to tax-advantaged retirement accounts and take advantage of catch-up contribution options when you are eligible,” Schroeder-Gardner advises. 

She also recommends looking into side hustles and other ways to make additional money. These can even provide extra income after you’ve retired if you want to continue working part time. 

Putting more money toward retirement savings, cutting your spending where possible, and finding additional income streams can help ensure your savings won’t run out once you’ve stopped working full time. 

How can I get excited about retirement savings?

Retirement saving can seem like a chore. It means spending less now so you’ll be more comfortable in a future that may seem far away. Here’s what Schroeder-Gardner has to say if you’re struggling to find the motivation to start saving: 

“Imagine the peace of mind and freedom that comes from knowing you have money saved for your future. By starting to save for retirement now, you’re not just setting aside money; you’re investing in a life with more freedom when you are older. Think about what you could do when you reach retirement. Picture yourself enjoying your dream hobbies, traveling to new places, and spending time with loved ones without worrying about money.” 

As a famous fictional high schooler once said, “Life moves pretty fast.” Start planning for retirement now so it doesn’t sneak up on you.

Open a Discover^® IRA Savings Account today. 

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