When should you start saving for retirement? The best answer would be that you started saving at infancy. It would be great if your parents started planning and putting away for you. If they saved about $300 a year ($25 a month) in cash until you were 18 years old, they would have saved up $6000 for you. It would probably be double if they invested into a stock portfolio for you. However, most parents do not do this. Therefore, it is up to you to start saving for your own retirement. The ideal age to start saving for retirement is between 18 - 25 years old. It is okay if you start saving later, but you should try to do it as soon as possible.
You might think that saving money is by putting away your cash each week, but doing so in today's bank interest rates will yield you the equivalent to less than a cup of coffee per year. It is a horrible idea to keep your money saved in a bank account and earning next to nothing. What you will want to do is choose a number you can afford to put away. Instead, you will you can start saving money by opening up an investor account at Schwab, Fidelity, E•Trade or any other stock market account, and you will likely double or triple your money in just a decade or two.
How much should you start saving? At around age 18 to 22 years old, we will assume you're making about minimum wage, which in 2022, is about $12 an hour. If you are making more, you will be ahead of the game. If you work about 30 to 40 hours a week, you should bring home between $250 to $350 a month after taxes. Considering expenses, you may only have enough to put about $25 to $50 per month ($300 to $600 per year) into your investment account, which is still a great amount to start saving for your retirement plan.
As you progress in your workplace, you should consider investing more money into your investment account. The younger you are, the lesser amount you can invest, though the more you invest, the better. If you began your retirement savings at 35 or 40 years old, you might want to invest more in order to catch up. By investing at a later age, the difference that you could have made is anywhere between $5,000 to $20,000 depending on your investments.
Ideally, you want to cut your paycheck into quarters, with one quarter going towards rent, one quarter going towards food, one quarter going towards luxury expenses, and the final quarter should be going towards your retirement.
- 25% to rent/bills
- 25% to food
- 25% to luxury expenses
- 25% to retirement
This is ideal but not always likely, as your biggest expense is always going to be your rent and bills. If you can put at least 10% towards your retirement while at a young age, you will be on track towards a comfortable retirement. The amount towards retirement may fluctuate depending on where you are in your life, whether you have children or not, college debt, etc. It may also increase or decrease depending on your priorities. If you have a 401k plan from your job, it is highly recommended that you max your plan to match what your employer will match which is usually 3% or 6% though you should aim for at least 10%. There are many 401k plans that allow you to do a percentage annual increase so you don't have to worry about it. Consider at least 1% to 2% for every year you remain working at your company. The difference is so little you will not notice it missing from your paycheck.
If your company does not have a 401k, the stock route is usually perfect at a young age. However, if you are looking to put away more, consider a traditional or Roth IRA account. It is highly recommended you put as much as you can away when you are young and while you can. Do note that once money enters into these types of accounts, there is a penalty to remove them. The government has their reasons for doing this, specifically because it is money designated to help you. You should also know that these accounts can max out and any extra money paid into them will be penalized. I know this is sounds crazy, but you cannot put over $6,000 into these accounts in any given year.
If you decided to go the real estate route when it comes to investing, that can also help you with your retirement planning. Depending on the lifestyle you plan to live in retirement is how much you would consider saving. Your younger self is technically working for your older self to save some money so that your older self can enjoy yourself. Mixed with your potential social security, you are on your way to a comfortable retirement.