Benefits of Saving Early for Retirement

If you’re in your 20s or early 30s, your money — and where it’s all going — is always on your mind. There are expenses like student loans, car payments, rent or mortgage payments, or even supporting a family. So where does saving for retirement fit into the equation?


Putting money toward retirement might seem like a task for your future self; you’re too young to worry about something that’s 30-40 years down the road, right? But as it turns out, your future self might need some help: According to a 2015 survey conducted by the Employee Benefit Research Institute (EBRI), only 14% of those 35-44 years old think they’ll have enough money to live comfortably in retirement, by far the lowest confidence level of any working age bracket. Furthermore, just 34% expect to have enough to cover basic expenses, again the lowest mark.


Maximize your savings ability by starting early. Your future self will thank you.

Where do I begin?

If saving for retirement hasn’t been top of mind, you’re far from alone. Forty-five percent of workers 25-34 years old say neither they nor their spouse has started saving for retirement, according to the EBRI survey.


You can get started by taking inventory of the retirement savings options at your disposal. Perhaps your company offers a retirement savings plan that you can enroll in; they might even match your contributions from each paycheck up to a certain percentage to help you save.


Not every employer offers its own plan, so the next place to look could be an Individual Retirement Account, or an IRA. An IRA is a retirement savings fund that features tax-free growth on your earnings.


There are two types of IRAs: Traditional and Roth. Contributions to a Traditional IRA are tax-deductible, meaning you don’t pay taxes on your earnings until you begin withdrawing. Then there’s a Roth IRA, where your contributions are made after taxes so your funds won’t be taxed when it comes time to withdraw. You can learn more about IRAs and which one best fits your needs by talking to a financial professional.

Can I afford to save for retirement right now?

You might be saying to yourself, “I know I should be saving for retirement, but I don’t know where I can find the money to do so.” Or you think your spare dollars here and there won’t make an impact.


The truth is, putting any money toward retirement early on — not how much — is most important. Time is your friend when it comes to saving for retirement thanks to compound interest (more on that later). Make it a priority to put money away for retirement just as you would a vacation fund; after all, your retirement is essentially a 20- or 30-year vacation. You might start small with your contributions to get the ball rolling, but you can always go back and raise your contribution level as your income grows or you find yourself in better financial footing.

How does my money grow?

The importance of saving early for retirement links back to one important factor: compound interest. This allows you to accrue interest not only on your initial contribution, but on the accumulated interest as well.


Let’s look at compound interest in action in this CNN Money example: Let’s say you’re 25 and you decide to put away $3,000 a year for 10 years in a tax-deferred retirement account with a 7% annual return. Then, after those 10 years, you decide to stop adding money, instead letting your previous contributions grow. Your $30,000 in contributions ($3,000 a year for 10 years) will have grown to $338,000 by the time you withdraw your funds at 65. If you saved the same amount each year starting at age 35 but for 30 years as opposed to 10, your $90,000 will only grow to roughly $303,000 when you reach 65.


You can view the difference in savings in the chart below:

StartSavingEarly_Chart 12-1-16

The first example contributed $60,000 less than the second example, but still saved $35,000 more for retirement, all due to starting 10 years earlier.

More information

To learn more about how to save for retirement, Ask a Citizen at your nearest Citizens Bank Branch.


Disclaimer: Views expressed may not necessarily reflect those of Citizens Bank. The information contained herein is for informational purposes only as a service to the public, and is not legal advice or a substitute for legal counsel, nor does it constitute advertising or a solicitation. You should do your own research and/or contact your own legal or tax advisor for assistance with questions you may have on the information contained herein.