The saying that it’s never too early to save for retirement may sound tired, but there’s a reason it’s repeated so frequently: it’s true. Time can significantly affect our ability to retire with adequate savings. There are many reasons why starting to save early in life can benefit us, and these nine are some of the most significant.
1. Life Expectancy
Today, the life expectancy of Americans is 76, though this number is a drop from before the pandemic, when the life expectancy was 78. The average retirement age is 62. Putting these two numbers together shows us that we must have enough money to support ourselves for over 15 years. That can add up to a significant amount of money, which most workers project will be well over a million dollars.
The more time we can give ourselves to contribute to a retirement savings account, the better prepared we’ll be for those 15 years when we need to rely on it.
2. Health Care Costs
As we age, it is, unfortunately, incredibly common to encounter more health concerns. Depending on the health issues we experience, we could face expenses beyond medication or hospital stays. We may need to pay to make our homes more accessible (for instance, by installing a ramp, elevator, or grab bars) or for in-home care and assistance. In some cases, we may need to move to an assisted living facility or retirement home to get the support we need.
These needs can add up to huge expenses, which, in some cases, can be ongoing. Starting to save early, even in small amounts, can help us ensure that we have money to help us through periods of declining health.
3. Early Retirement
While early retirement is a popular idea and, for some, a driving financial goal known as the FIRE movement, this isn’t the main reason why starting to save early is important. What many of us may not be aware of when starting to save or make a retirement plan is that most people end up retiring five years earlier than they intended.
That’s a loss of five years of savings we might be relying on for our golden years, and for many Americans, losing those five years wasn’t a choice. Failing health, disability, and layoffs are frequently to blame for early retirement.
4. Compound Interest
In personal finance, few concepts are as thrilling as compound interest. Compound interest refers to earning interest on the interest already earned from our savings. It’s essentially your money multiplying without you doing anything besides making deposits into a savings account or an investment. The longer our money can earn interest, the more we’ll benefit from compounding.
5. Reduced Investment Risk
The concept of compounding interest also applies to returns on investments, allowing us to get more out of our investments in the long term. With investments, we also get another benefit by starting sooner rather than later: reduced risk.
Typically, long-term investments perform better than their short-term counterparts. For investors, especially those planning for retirement, this helps us build a valuable investment portfolio we can count on for retirement—although it’s important to note that all investments come with some form of risk.
This reduced risk is attributed to our long-term investments having the time to wait out market downturns or periods of intense volatility.
6. Inflation
Inflation is the reason our jaw drops at the cost of produce at the grocery store and has us muttering to ourselves, “I remember when this cost half that!” More technically, inflation refers to the decrease in the purchasing power of a dollar over time. As inflation increases, the value of a dollar decreases. When it comes to retirement planning, it’s important that we take inflation into consideration.
The best way to keep pace with inflation is through compounding interest and returns on investments, meaning that once again, the more time we dedicate to saving, the more we will benefit in retirement.
7. Financial Stress
Retirement saving is a significant source of stress for working Americans. The more time we give ourselves to save and create a realistic plan, the more we can reduce financial stress during both our working and retirement years.
8. Financial Security for Loved Ones
While taking care of our personal financial well-being is the priority in retirement planning, many also aim to provide financial security or assistance to others. Perhaps it’s being able to contribute funds for our children or grandchildren to buy a home or get an education, help in times of financial hardship, or spoil our loved ones when the opportunity arises. By starting early, we can increase our ability to do this.
9. Quality of Life
When we start saving early for our retirement, we make it possible to lead the lifestyle we want and to enjoy our retirement. Whether we want to spend our retirement travelling, indulging in the best foods, or even trying our luck at gambling (casinos.com will show you where to find slot apps), financial security can help us attain a better quality of life.
Time Is Our Biggest Ally in Retirement Saving
Starting to save as early as possible allows us to retire with more comfort and less stress. We’ll be using time in our favor to take advantage of things like compounding interest that will (hopefully) help us outpace inflation and get more for our dollar. This will help us reach the lofty goal of financially supporting ourselves for more than 15 years while enjoying our life to the fullest—whatever that might look like to each of us.
