When it comes to retirement, saving now is always better than delaying. These simple future value calculations show exactly why.
For example, let’s say you set aside $200 a month for retirement, at a modest return of 4 percent. If you start at 25, the future value calculator says you’ll have $235,000 by age 65. If you start at 35, however, you’ll lose a decade and $97,000—saving just $138,000 by the time retirement rolls around. The longer you wait, the more costly the delays become.
To catch up after delaying retirement savings, you’ll have to save more. If you wait until 35, you’ll have to save $350 a month instead of $200, using the above scenario. Delay savings another 10 years? You’ll have to save $650 a month to catch up.
You can also make up the difference by aiming for higher returns—7 percent instead of 4 percent, for example—but that often involves committing to riskier investments. Increased risk could set you back even more if the market swings the wrong direction at the wrong time.
Do you need to make those savings or risk adjustments? You can use a present value calculator to find out. When we assume a 30-year retirement, that $235,000 from the above example provides a monthly income of about $1,125. With $138,000, you get just $650 a month.
Both calculators make it clear, then, the best solution is to save as much as possible, as soon as possible. Our present selves might not like it, but our future selves will.
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