The cost of everything is getting bigger while social security payments are getting smaller for retirees. This leaves many people wondering how to prepare properly for retirement. The best way to prepare properly is to start saving earlier. As a future retiree, this article will teach you why it is important to save early.
You won’t have to save as much
First, it is important to save early for retirement so you won’t have to save as much. The earlier you save, the less money you have to put away. If you save closer to the age you want to retire at, then you have to save more money in a shorter amount of time. For example, if you begin to save money when you are 20 and you want to retire at 65 then you have 45 years to save. Compare this to creating a retirement fund at age 50 to retire at age 65. If you do this, then you only have 15 years to save.
People who save earlier make more money
It is a well-known fact that people who save earlier make more money over time. This is due to compounded interest. Compounded interest is what makes the interest in bank accounts grow over time. It is interest on top of the interest that is placed on your money in the bank.
A person who begins to save at 20 years old and consistently invests (saves) it until they retire, ends up with more money. Take for example, a person who begins saving $100 once a month for 40 years. If they have 10% interest on the money they save, then they will have $632,408 in the bank. A person with the same interest that is able to save $2,000 a month for 40 years will end up with $12,648,159 in the bank. The earlier you save, the more money you make.
It is becoming impossible to live off social security alone
As the years go by, social security payments are getting smaller for retirees. This is unfortunate because retirees are now finding it impossible to use only their social security payments to live off of. This is due in part to more people receiving social security payments. On the site, Social Security Basic Facts, it states that in 2013, almost 58 million Americans will receive $816 in social security. However, of the 37 million retired workers, each will only see $1,269 average. As the cost of living increases and bills are coming due, many people are finding it impossible to live using only this. Saving early is important so that you are not restricted to living off of the social security payments only.
Between the cost of living going up and the amount of social security payments going up, it is becoming more important to save early for retirement. Saving earlier for retirement will allow you to live more comfortably when it comes time to retire.