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When to Start Saving for Retirement

Retirement Planning
senior couple eats at home and decides to discuss when to start saving for retirement with their kids

Have you been wondering about your retirement needs — or when to start saving for retirement? This is a big question many people have, and the answer is always the same: As early as possible!

This answer can sometimes feel overwhelming, especially if you're nearing retirement age. But saving for retirement should be top of mind for people in every life stage. So, what steps can you consider to help save the money you need for your future — no matter what life stage you're in?

Compound Interest

When examining your retirement needs, you might come to the conclusion that you need a large sum of money to retire. You could potentially accumulate a large amount of savings during your working years, but having a savings strategy for growth could be an important part of achieving your retirement goals.

One potential strategy? Consider making your money work as hard for you as you did to earn it. This is where investing and compound interest could help you achieve your goals. Compound interest is what happens when the interest you earn on an initial sum is added to your total balance, meaning that interest starts earning interest too.

The greater the interest rate, the more money your savings and investments potentially earn, which is why investing — and not just saving — could be important. It might not be enough to put your savings under your mattress or in a bank account. Test our theory with a compound interest calculator — like the one offered by the Securities and Exchange Commission — and see how you could benefit from compounding returns and how it adds up over a period of decades.

Good & Bad Debt

Before you can build your retirement savings, you will want to consider the implications of debt. According to Debt.org, if debt increases your net worth or has future value, it's good debt. If it doesn't do that and you don't have the cash to pay for it, it's bad debt. The student loans that helped you get the degree that led to your great job? Good debt. Overspending on your credit card for items you can't afford? Bad debt.

If you have bad debt, you may want to set a budget to repay those balances. One approach is to pay off the loan with the highest interest rate first (if you want to pay everything off as quickly as possible). Or you can begin with the smallest debt if you need a few quick, easy wins to keep you motivated to continue with your repayment schedule.

401(k) or 403(b)

If you don't have any bad debt to repay, you can focus on how to best allocate your money for retirement. Have you thought about taking advantage of your employer-sponsored retirement account — like a 401(k), a 403(b) (for nonprofits) or a savings incentive match plan for employees individual retirement account (SIMPLE IRA) — if you have one available?

If possible, you may want to consider contributing at least enough to get the company match, if your workplace offers it. In addition to the employer match, these plans usually come with tax advantages, such as Roth 401(k)s (pay tax now, but withdrawals are generally tax-free at retirement), in-service transfers (which offers the ability to roll the money to another account outside the company plan without a tax event) and traditional 401(k)s (pre-tax contributions that make your take-home pay higher or lower). Whichever strategy or combination of options you choose, remember that as your money potentially grows, so does your tax bracket.

If you can contribute the allowed maximum amount to an employer-sponsored retirement account, still have money to save each month or you don't have an employer plan, then one option is a Roth individual retirement account (IRA). A Roth IRA is after-tax income you can invest in an account to withdraw tax-free after age 59 1/2. You can contribute up to $5,500 per year into a Roth IRA — if you are eligible based on your income.

Retirement Before College

There are no scholarships or grants for your retirement. While many parents end up prioritizing their children's college funds over their own retirement needs, there are multiple ways your children can afford college, including student loans, scholarships and grants. They can even work part-time to help out while they're in school. While you might want to help your children, saving for your own retirement is important too.

No matter where you are in life, saving for retirement should start as soon as possible. If you're earning an income, you should also be setting aside some of that money to invest in your future. Every little bit counts — and doing something small is better than doing nothing at all.

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Information provided is general and educational in nature. It is not intended to be, and should not be construed as, legal or tax advice. Western & Southern Financial Group and its member companies (“the Company”) does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.