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How Do You Get Started Saving for Retirement?

From Fidelity.com

For generations, people were able to fund their retirements with Social Security and pensions, but today a large portion of Americans must rely more on personal investments and earnings to support their retirements. When you have bills to pay and lots of other priorities demanding your money, saving for retirement may seem like something that you can put off. But the sooner you start saving, the more you can use time to your advantage. Having a successful retirement means balancing retirement saving with your other life goals, and making retirement saving a top priority. The earlier and more aggressively you start, the better your eventual result can be.

Advantages of investing early

The chart shows how time can be the retirement saver's biggest ally because it gives each dollar the greatest amount of time to work for you. In the hypothetical example, at age 25, Robin starts investing $4,000 annually for retirement in a hypothetical portfolio that provides a 7% average annual return. After 10 years, she stops making contributions. Wendy, on the other hand, waits until age 40 to begin investing $4000 annually and continues to do so for the next 25 years. Even though Robin invested for only 10 years, she still ends up accumulating a significantly larger retirement savings by the time she reaches age 65: $450,146 versus $270,706. That's a difference of $179,440, with 15 fewer years of saving.

Like Wendy, if your savings begin later in life, don't be discouraged. What you save today can grow exponentially for your future. What's important is taking the first step toward developing your retirement savings plan.

Key Steps for a Successful Retirement

Once you decide to start saving for retirement, there are two critical steps to keep in mind:

  1. Develop an effective savings plan, which means:

    • Saving the right amount
    • Saving regularly
    • Saving in the right accounts
    • Protecting your savings
  2. Create an investment strategy — choose the best mix of investments for your savings based on your retirement goals, such as time frame and comfort with potential risk.

Periodic investment plans do not assure a profit or protect against a loss in a declining market.

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