Short answer: as soon as you begin working. Too late for that? Remember that saving will be easiest if you start now.
Who wants to be a millionaire?
For many people, having a million dollars might seem like being elected President—a worthy but unattainable goal.
But getting to a million might not be that hard if you know the secret: time.
If you give your savings enough time to grow, you’ll only need relatively small investments of money—made consistently—to wind up with a pretty big balance.
How much do you think you’d need to save each year in order to reach a goal of a million dollars? $20,000? $50,000?
In fact, if you save just under $4,500 per year over a 45-year career, you could have over $1 million by the time you retire. And if you have the opportunity to invest in a retirement plan that offers a matching contribution from your employer, your yearly investment could be as small as $2,200.
It might seem backwards to worry about the last money you’ll need before you think about meeting any other financial goals. But because compounding is so powerful, starting early gives you more flexibility later on in life.
Imagine you start saving at age 25 and dutifully put away $10,000 a year, including any matching contributions your employer offers. But at age 40, you need to stop saving for some reason.
Your friend starts saving at age 35 and saves the same $10,000 a year for the next 30 years, until you both retire.
At that point, all else equal, you’ll have more money than your friend, despite having put away only half as much.
Making the most of the early years of your career is one way to hit your retirement savings goal—and probably the easiest—but it’s not the only way. If you have less time to save for retirement, you’ll simply need to save more each year.
For example, as we saw above, if your goal is to have $1 million at age 65 and you save just under $4,500 each year starting at age 20, there’s a good chance you’d meet your goal.
If you start at age 30 instead, you’ll have to save about $9,000 each year for the same chance at reaching your goal.
Beginning at age 40? You’ll need to save about $18,000 a year. And if you wait until age 50, you’ll need to put away over $40,000 a year to give yourself a good shot at reaching your goal.*
In other words, no matter what your current age, you’ll always be better off starting now rather than waiting until later.