You’re missing out on years of ‘free money’ if you wait until this age to start saving for retirement – NBC New York

If you don’t start setting aside money for retirement by age 40, you may need to rethink your long-term plan.

At this age, putting more money into your retirement accounts later may not be enough to live out your post-work years the way you want, says Anne Lester, retirement expert and author of “Your Best Financial Life: Save.” Smart Now for”. the future you want.

At 40, “you really have to think about solving that challenge by not just figuring out how to save more,” she tells CNBC Make It. “Either you have to keep making money or you have to stop consuming or stop consuming Radically change consumption habits in retirement.”

This may mean making major changes to your retirement lifestyle, such as: B. downsize your apartment, move to a place where the cost of living is lower, stop traveling as much, or even work longer hours.

“If you don’t save at a young age, you’re taking away decisions about your future,” says Lester.

The benefits of saving for early retirement

According to recent data from Bankrate, about a quarter of Generation Z workers, those ages 18 to 27, have not contributed to their retirement savings in the past year and are not currently contributing.

In your 20s, your finances may be too tight to comfortably set aside a lot of money for retirement, says Lester. That’s fine – but don’t wait forever.

“In your early 20s, missing a year isn’t such a big deal,” she says. “But one of the tragedies of missing out on those early contributions, especially if it’s a 401(k) and there’s a company match, is that you miss out on free money and you don’t get it back.”

DON’T MISS: The ultimate guide to negotiating a higher salary

When you start setting aside money for retirement early, your money has more time to grow through the power of compound interest. You’ll also have to contribute a smaller portion of your annual income than if you start contributing when you’re older.

Experts generally recommend setting aside 15% of your annual income, including any company contributions. However, that percentage rises to 25% or more if you wait until you’re 40 or older to get started, Lester says.

Let’s say your goal is to retire with $1 million by age 65. If you start contributing at age 25 and earn a 7% annual return, CNBC calculates that you would need to set aside $381 per month to reach your goal. But if you start at age 40, you’d need to save about $1,234 per month to reach the same goal.

While it’s still possible to reach the $1 million goal with a later launch, it will require significantly more money, which may not be feasible.

“If you wait until you’re 40, you’re missing out on about two decades of wealth creation,” says Lester.

Ultimately, it can benefit you twice over if you save a small amount for early retirement. For one thing, you give your money more time to grow. And second, you start to get into the habit of saving, which makes it easier to continue over the long term, says Lester.

“You start building the savings muscle, and then gradually it becomes less scary, less intimidating, less frightening,” she says. “You start to redefine yourself as someone who saves and invests, and that sets you on the path to making a lifetime of decisions as you get older.”

Do you want to make more money at work? Take CNBC’s new online course How to negotiate a higher salary. Experienced instructors will teach you the skills you need to get a bigger paycheck, including preparing and building your confidence, the right approach, and how to formulate a counteroffer. Pre-register now and use coupon code EARLYBIRD for an introductory 50% discount through November 26, 2024.