For so many Americans, retirement planning is a complete mystery. For some people, they’d have an easier time deciding who shot first (Han Solo or Greedo?) than making decisions about their retirement savings. When CBS News asked consumers a while back how much they’d need to save for retirement, the median answer among Americans was $300,000.
Sure, everyone is different. We all need different amounts of money to live, survive, and thrive. But, regardless, $300,000 is way off the mark. Unless you’re planning to work until you’re 80 years old, which 30% of people in a Wells Fargo survey said they intended to do, you will run out of money before the end of your lifespan.
Helga Cuthbert is a certified financial planner and the principal of Cuthbert Financial Guidance in Decatur, Georgia. We spoke to her about retirement planning to gain some additional insight on the subject. She says this 30% group is taking a big risk, as this plan assumes there will be a job available and that they will physically be able to work at the age of 70, 75, or 80.
Just because dynamos like Alex Trebek and Morgan Freeman can pull it off, this doesn’t mean the rest of us can. So, this means we should have a plan. So, why isn’t everyone saving for retirement?
With all the monthly bills, combined with the unplanned expenses people have, extra money is often in short supply, and retirement may be something people plan to simply worry about later. Young people, in particular, place retirement on the back burner — probably because it seems so far down the road. “The earlier [people] start, they place themselves in a better position … and don’t have to save as much later… They don’t have to play catch up in their 30s and 40s,” says Cuthbert.
How would you rate your retirement knowledge? Find out by answering these questions.
1. At what age should you start saving for retirement?
What do you think? Does 25 sound about right? Maybe 30?
Well, the real answer to that question is: as early as possible. Cuthbert suggests you start saving “as soon as you have earned income [from a career].” Say, for instance, you begin placing $5,000 per year into a traditional IRA at age 25. By age 65, your IRA will be worth nearly $1.1 million before taxes — a pretty large chunk of change (over 500% of your contributed amount).
On the other hand, if you wait until age 40 to contribute the same amount, you end up with an IRA worth around $340,000 (before taxes) — around 275% of your total contributed amount.
“Young people seem to understand financial independence, but for many, retirement is an alien concept. … Starting early allows time for interest to compound,” says Cuthbert.