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Sooner Rather than Later

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December 31, 2012 at 11:17 am
Personal Finance

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Most people my age (their 20’s) plan to start saving for retirement in their 40’s and 50’s. As their working lives draw to a close, they plan on using the extra dollars earned over that time to bank-roll their retirement. But simple math reveals that saving the same amount of money in your 20’s can yield over twice as much as saving the same amount in you 40’s or 50’s as compound interest works it’s financial sorcery.

The benefits of saving in your 20’s are clear. But even if a young saver is aware of the advantages of saving early in his life, he or she might feel that their budget is just too thin to spare. It’s hard enough just trying to keep your lights on in your 20’s, and with the cost of living increasing at an average of 5% over the past 10 years, it’s not likely to get any easier.

But what if you were making more money now relative to your cost of living than you would at the end of your career? In 2011 household earners between the ages of 45 to 54 have brought home 16.9% less than they did in 19991. To be sure the earnings of workers in their 20’s and early 30’s have dropped as well during the past decade, 16.2% and 12.5% respectively.

However, compared to 2010, earners between the ages of 15 and 24 saw their incomes increase by 4.6% while earners between the ages of 45 to 54 actually lost 4% of their incomes.

All the trends appear to be pointing in one direction: save while you’re young!

1. http://www.advisorperspectives.com/dshort/updates/Household-Incomes-by-Age-Brackets.php