Start saving now
- Losing even one year of contributions can have a significant impact.
- The power of compounding can grow your assets beyond your investment.
- A financial advisor can help you balance competing saving goals.
You may not feel much urgency about saving for retirement when you're focused on shorter-term needs such as buying a home or saving for college. But it pays to take a long-term view and start saving as soon as possible.
How the power of compounding can help you save for retirement
The money you save now may have many years to grow until you eventually need it. And depending on the type of account, that growth may be tax-deferred. By starting early and saving regularly over several decades, even small contributions can grow to a substantial retirement savings by the time you retire.
Example: The cost of waiting to save
|Starting Age||Annual Contribution||Years||Return||Value at 65|
As you can see, waiting to begin can make a huge difference. For example, starting to save $5,000 at 36 instead of 35 can make a difference of approximately $29,000. That's $29,000 that could help you retire sooner.
The power of compounding helps build savings with less effort
One technique for building retirement security is the power of compounding. This is the ability of an investment to generate earnings that in turn generate their own earnings.
Compounding can result in far more than the amount you’re actually investing. In the previous example, $150,000 (made up of 30 annual contributions of $5,000) grows to $419,000 over 30 years. In other words, $269,000 — or 64 percent — of the total is created by the power of compounding.
Balancing retirement saving with saving for short-term goals
You may feel that multiple goals are competing for your savings. For example, saving for your children's education may feel more important right now than saving for your retirement. In reality, it's essential to do both. Your children may be able to obtain loans or financial aid to help pay for college. But there's no "financial aid" for retirement — except to save and invest during your working life.
Whether you're saving for education, a new home, or to support elderly parents, an Ameriprise financial advisor can help you balance your short-term needs with a realistic retirement savings plan.