Starting to save early means you have to save less

It is never too late to start saving for old age. This can make it easier to save and plan for retirement than to start saving later in your career.

Early savings means:

  • You need to save less each month
  • Your money will have more time to earn higher compound interest

Example: How much you need to save each month if you start saving for retirement early

Let’s say you plan to retire after 20 years. You want to save $75,000 for your retirement. You earn 5% compounded annual interest on your savings.

Compare how much you would save each month if you start saving now or 10 years from now. When you have 20 years to save instead of 10, you have to put $14,160 less in the bank to reach your goal. This is because the longer you save, the more interest you will earn. In this example, you earn $14,020 in interest when you have 20 years to save than if you have 10 years to save.

Consider how inflation will affect your savings

Inflation is an increase in the cost of consumer goods and services. It is calculated by the Consumer Price Table. The Consumer Price Index measures the change in prices of around 600 consumer goods and services over time.

You can see the effect of inflation in two ways:

  • Increase the cost of the goods and services you buy
  • You will reduce the purchasing power of your savings over time

For example, a $100 purchase in 2006 cost about $118 in 2016.

Example: How Inflation Affects Your Retirement Savings

Let’s say you plan to retire after 20 years. You want to save what he buys for $50,000 today. Based on an annual inflation rate of 2%, it takes $74,300 over 20 years to buy something that would cost $50,000 today.

How to start saving for retirement

Get in the habit of saving a portion of your paycheck each paycheck if you can afford it. The earlier you start saving, the longer it will take for your money to earn and grow. To reach your savings goal, learn about:

  • Various investment tools
  • Registered savings plans

Using automatic deposits and payments can be a great way to save money. Contact your financial institution to have a fixed payment automatically deposited into a savings account. Consider increasing the number of automatic payments or deposits as your salary increases.

Balance your current financial priorities

Saving for retirement can be difficult when you have other needs for your money, like a mortgage, rent, car money, or student loans. Budget to better estimate how much you can save for retirement.