Planning for Retirement: You’re Never Too Young

When it comes to retirement planning, there is no better time to start than today! We push off many things until tomorrow, like laundry or grocery shopping. After all, we’ll get to it later, right? And that may be fine regarding simple errands. However, financial planning for your retirement should NOT be one of those things you put off.

Take a closer look at the benefits of early retirement savings and the potential cost of waiting below.

How Early Should I Start Saving for Retirement?

Early financial planning, particularly when you have fewer responsibilities, allows you to:

  • Grow your money longer
  • Take advantage of your longer time horizon and higher risk tolerance
  • Possibly even retire earlier

In 2022, nearly half of American households have no retirement savings. Twenty-six percent had saved more than $100,000, and just 9% had more than $500,000.

Perhaps this relates to the phenomenon of temporal discounting, which refers to the mentality of preferring more immediate rewards over future benefits. This thought process is why many people have trouble saving: It means they have to forgo something today, which requires discipline. In addition to poor financial decisions, temporal discounting can lead to unhealthy lifestyle choices. While these behaviors can offer instant gratification, they can also have negative long-term impacts on your finances and life.

On the other hand, the sooner you start saving, the more time your money has to grow. Waiting until retirement age to plan for retirement is already too late. Instead, let your money work for you early and compound over 35 to 40 years. The more you save and invest now, the more you can enjoy those savings later.

The proof is in the numbers! MassMutual shared the results from saving $475 a month and earning an average annualized return of 8% starting at age 22 compared to 32, 42, and 52—every 10 years makes a significant difference:


Benefits of Early Retirement Planning

Rising general inflation, tax rates, and healthcare costs will affect how much you need to support yourself in retirement. Starting younger allows you to take advantage of a time when these expenses are lower.

Additionally, it gives you more time to adjust your retirement plan to optimize the taxation of your investments. You can use tax-advantaged accounts such as employer-sponsored plans and Traditional IRAs, as well as contribute to taxable accounts like Roth IRAs and individual accounts, for your financial gain come retirement.

Starting earlier allows you to take advantage of the higher average returns in stocks compared to less risky yet lower-yielding assets like bonds or cash instruments.

Investment researcher Morningstar reports, “Since 1926, large stocks have returned an average of 10% per year; long-term government bonds have returned between 5% and 6%.”

Bottom line: Waiting to start retirement planning can expose you to the risk associated with stock investing as you try to compensate for the time you have not invested. Investing early allows you to leave your money in the market and recover in down markets while also improving your overall cost basis.

Final Thoughts on Early Retirement Planning

If you’ve saved little to nothing for your retirement, don’t worry—you can put yourself in a better position by starting today. It begins by automating your savings, taking advantage of employer matches, and fully investing your money today.

And of course, you don’t have to manage it all alone! Speak with a Carlson Investments advisor today if you have questions about your retirement or other financial goals.

Carlson Investments does not provide tax, legal, or accounting advice. This content has been written for informational purposes only. Always consult your individual tax, legal, or financial professionals for advice tailored to your situation.

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