Photo of Jon Brethauer Jon Brethauer Mar 31, 2020

Wondering when to begin retirement planning? The simple answer is as soon as you can, but the optimal age would be in your 20s or whenever you start making a paycheck. Because retirement funds are compounding, the longer you leave the funds in your retirement account, the faster it will grow.

A compounding investment means that the amount grows by a percentage of what is currently in the fund. For example, if you set aside $5,000 a year between the ages of 25 and 30, and then never contributed again after the age of 30, you’d still have roughly $108,000 in retirement at the age of 60 (that’s with an estimated return rate of 5%). If you continued that contribution of $5,000 per year through the age of 60, you’d have an estimated $440,000 in your retirement account. That amount would continue to grow regardless of additional contributions due to compounding interest.

Is it too late to start retirement planning?

According to a study from CNBC, “about half of the adults between 18 and 34 are not saving for retirement at all, compared to 42% of adults aged 35 to 44, and 40% aged 45 to 64.” So, if you haven’t started saving for retirement yet, you are not alone. But you should know that you are losing valuable years when your money could be compounding, even if you’re not able to contribute regularly.

That being said, it’s better late than never to start retirement planning. A CERTIFIED FINANCIAL PLANNER™ professional can help reallocate areas of your budget to gain a more aggressive monthly contribution to your retirement plan. The average American needs $1.6 million in retirement investments in order to live on an invested income of $65,000 annually.

Before you become overwhelmed by the thought of having $1.6 million in retirement, remember that CERTIFIED FINANCIAL PLANNER™ professionals work with people in all economic situations. While you may have started your retirement planning later than what is ideal, you can still make up for lost time with an aggressive, intentional financial plan.

Starting in your 40s and 50s

If you are in your 40s or 50s and have not started saving for retirement, you still have a few options. The first thing you should do is max out your yearly contributions to your IRA and 401(k) accounts. If you are under the age of 50, the maximum annual amount you can contribute to your 401(k) is $19,500. If you are older than 50, the maximum contribution increases to $26,000. You can also invest additional “catch up” contributions if you are over the age of 50.

Start investing in your retirement today

Don’t let retirement sneak up on you. Take charge of your retirement planning and help ensure the quality of life you want to live after your working years are complete. Talk to one of our CERTIFIED FINANCIAL PLANNER™ professionals today to create a personalized financial strategy specific to your current financial situation and your retirement goals. Contact us today.