Waiting to Save for Retirement Could Cost You

September 11, 2023
When you start saving is a key factor in meeting your retirement goals.

When it comes to saving for retirement, the clock is ticking. To illustrate the value of time, let's consider three Roth IRA investors.

Kate, Derek, and Jane all decide to open Roth IRAs to supplement their other retirement accounts. Each investor hopes to build their Roth IRA to $500,000 at the time of retirement, though they're starting to save for retirement at different ages. All plan to retire at age 65, and the investors make the maximum allowed contribution each year.

Image showing a 28-year-old who contributes $6,000 per year, a 35-year-old who contributes $6,000 per year, and a 50-year-old who contributes $7,000 per year

*People age 50 and older are allowed to include a $1,000 "catch-up" contribution.

By age 65, here's how their savings could add up

Image showing the value of contributors' Roth IRAs at age 65. At age 65, the investor who started saving $6,000 per year at age 28 now has $890,000. At age 65, the investor who started saving $6,000 per year at age 35 now has $565,000. At age 65, the investor who started saving $7,000 per year at age 50 only has $189,100.

The example is hypothetical and provided for illustrative purposes only. It is not intended to represent a specific investment product. Dividends and interest are assumed to have been reinvested, and the example does not reflect the effects of taxes or fees. Assumes annual contribution of $6,000 until age 50, and $7,000 from age 50 to age 65; also assumes 6% average annual portfolio growth. Values are rounded.

How you can best prepare for the future

Here's a retirement savings rule to get you started.

A good rule for a retirement savings goal is 25 times the income you'll need in your first year of retirement. For example, if you'll need $50,000 in your first year of retirement, your goal may be to save $1,250,000 for retirement.

If you start saving in your 20s, contributing 15% – 20% of your paycheck (including any savings match from your employer), you'll likely meet your retirement savings goal. With every decade you delay, however, you'll need to save a larger percentage of your paycheck.

To reach one's retirement goals, an investor in their 20s may need to save 10% – 15% of their paycheck. An investor in their 30s may need to save 15% – 20% of their paycheck. An investor 40 – 44 years old may need to save 20% – 30% of their paycheck. Investors 45 and older may need to save 30% or more of their paycheck.

Find additional ways to save

Here are some options for getting on the right track:

  • Maximize your workplace retirement plan. For 2023, the maximum 401(k) contribution for employees under age 50 is $22,500. Employees age 50 or older can make an additional catch-up contribution of $7,500. Be sure to take advantage of any match your company offers. 
  • Devote funds from a windfall, such as a bonus or inheritance, to an investment account geared toward your retirement.
  • Set up a taxable brokerage account to supplement your retirement savings.
  • Give your savings a boost. As your income increases, up your savings rate by 1% – 3% each year. Before you know it, you'll be savings a lot more than you thought you could.
  • Start a Health Savings Account (HSA)—if you're able—to help cover medical expenses, both now and later in life.1 If you don't use the money, you won't lose it. An HSA stays with you.

Better late than never

Invest in your future sooner rather than later. If you're starting later in life, don't get discouraged—there are other options that could help you reach your financial goals. All it takes is discipline and perseverance.

You may only open and contribute to an HSA if you're covered by a high deductible health plan. Contribution limits for 2023 are up to $3,850 for single coverage and $7,750 for family. See HealthCare.gov for details.



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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Investing involves risks including possible loss of principal.

This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Charles Schwab & Co., Inc. ("Schwab") recommends consultation with a qualified tax advisor, CPA, financial planner, or investment manager.

Diversification and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets.