[Replay] Planning for Retirement, Part I

Over the next few weeks, we’ll revisit our series on retirement planning! This week, we’ll discuss some questions and scenarios to get us thinking about saving for retirement!

Let’s start with a scenario.

Let’s say Aliyah saves $75 a month for retirement from age 18 to 28, then stops. If her retirement investments return 8%, she will have around $260,000 from just $9000 in contributions.

Now let’s say that Jason also saves $75 a month. However, he doesn’t start until age 28. He attempts to make up for this by savings all the way until age 65. Despite over $33,000 in contributions, close to four times as much as Aliyah, at 8% he will have around $200,000 in retirement savings, roughly $60,000 less than Aliyah.

This illustrates just how important saving early for retirement is in order to take advantage of cumulative growth.

Now let’s look at some data to see if people are saving for retirement early, like Aliyah in our scenario.

According to the 2016 Retirement Confidence Survey, by Employee Benefit Research Institute and Greenwald & Associates, while over 70% of employees age 35 and older are saving for retirement, only about half of employees between the ages of 25-34 have started, during the time period most beneficial for cumulative growth of retirement funds. Looking at more data from that survey, for those same employees ages 25-34 – less than 25% have at least $25,000 in savings and investments, and 60% have less than $10,000. In our earlier scenario, investing just $75 a month, and doing it for only ten years from age 18 to 28, Aliyah had over $25,000 in savings by age 35.

Part of this lack of savings may be a lack of planning. While the earlier years are so important for long-term retirement savings, the majority of young employees aren’t even thinking about it. Data from that same survey show that less than half of employees ages 44 and younger have begun figuring out how much money they’ll need to put aside to live comfortably in retirement. 

Over the next few weeks, we’ll discuss various terms, investment plans, how to calculate what you’ll need, and withdrawal strategies for retirement.