Ideal Time to Start Saving for Retirement

Retirement is something people start thinking about (quite) late in life – yes, generally in their mid-40’s.
During the early years of our career, most of us think about purchasing a house, buying a car, travelling around and spending on food, fun, entertainment, and everything which gives us pleasure.
Time flies and responsibilities start creeping in, and we gradually realize many other things need our financial focus.
Saving for retirement doesn’t seem to be the need of the hour unless reality strikes, and we scramble to get things right.
So, the question remains – when is it the right time to save for retirement?

The Sooner the Better

Well – start as early as you can! Ideally, you should start saving from your 20’s – just as you begin earning paychecks.
Remember, the earlier you start saving, the more time your money will have for its growth.
The gains of every year will help in generating additional income in the following years. That’s the powerful wealth-building phenomenon; it is also known as compounding.
If it doesn’t sound convincing enough, let us use an example for better understanding.
Suppose Mr A starts saving from the age of 25. He keeps aside $3000 each year in a retirement account for ten years. After this, he stops saving totally.
Now, when Mr A is 60-years-old, his total investment is $30,000, and this investment grows to more than $338,000 (assuming the rate of return is 7%).
Remember, Mr A did not contribute anything after the age of 35.
Now, let’s consider another scenario when Miss B starts her retirement savings at the age of 35. She decides to save $3,000 each year for the next 30 years.
When she reaches the age of 65, she would have invested $90,000 that will grow to $303,000 (assuming the rate of return is 7%).
Isn’t that a huge difference?

The Benefits of Starting Early

When you start savings quite early for your retirement, it is going to reward you well. It is the time when your responsibilities are few.

With just a bit of effort and small sacrifices, you can save a great deal – certainly more than what you can save when you are in your 30’s when you have family responsibilities.

Besides, associated responsibilities, in the form of car loans, home loans, schooling expenses of kids keep adding up to your expenses.

Thus, putting aside a sum each month to create a retirement fund right when you are in your 20’s is a smart idea.

Now – the benefits of doing so:

You have time on your side. You can begin with whatever amount you are comfortable with and keep increasing it as you can over time.

If you can, you can try for a large corpus. You know you are going to progress in life, so why not invest more money, and returns will be higher as well.

You have the chance to get higher returns if you start young.

1. Longer Period

When you start saving as soon as you begin earning and plan for your retirement in the early stages of your career, you get a much longer period to build your savings as compared to starting late.
Suppose you start working at 22 years of age. Assuming you retire at 60 years, you have got 38 years to build your savings!
Even if you save a small amount every month, you will get a whopping sum as your retirement savings, simply because of the result of starting early.

2. Lesser Financial Obligations

When you start working, even at a lower income level, it’s easier to save a more substantial amount.
Why is that you may ask?
The answer is straightforward.
Generally, a person has fewer family responsibilities at a young age. Moreover, financial obligations, such as paying a mortgage or car loan, are fewer or none.
Thus, even with lower earnings, there can potentially be higher savings.

3. Time Creates More Money

Remember the golden rule, “Time creates money”.

It means that the power of compounding works wonders over time.
The earlier you begin investing, the more will be the compounding effect on your investments.

So, go ahead and plan for your retirement, if you still haven’t. If you have started earning – it is the right time to plan.

It is never too early to start saving money.



Jun Sing Tan

I help young adults and working professionals achieve their financial goals with a full suite of risk management and wealth accumulation solutions. I firmly believe that financial education should be easy and achievable for all. I am committed to service and hope to be your one stop financial solution.


Jun Sing Tan

November 21, 2020