How Much Waiting Until 35 To Invest Costs You in Retirement
At the start of adulthood, it can be next to impossible to picture its final years. But failing to do so might be the most expensive mistake of your life.
The 20s can feel like a financially chaotic decade of starting a career and managing high costs of living. Retirement savings might not even be part of the financial picture at this juncture. But financial planners say that even a relatively short delay in investing can reshape the trajectory of someone’s retirement.
Here’s a more detailed look at just how much waiting can cost you and how to get started.
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The Hidden Cost of Waiting Until 35 To Invest
A decade may not seem significant early in a career, but in retirement investing it can have a major long-term impact, according to Christopher Stroup, CFP and owner of Silicon Beach Financial.
He illustrated the difference thusly; consider two investors contributing $500 per month earning a 7% return:
Starting at 25: about $1.2 million by 65
Starting at 35: about $570,000 by 65
“Same contribution. Same return. The difference — roughly $600,000 — comes entirely from those extra 10 years ... " Stroup said.
Why Compound Growth Makes Early Investing So Powerful
Compound growth is what allows investments to generate returns on previous returns, according to Julian B. Morris, a CFP and principal at Concierge Wealth Management.
“Early in the process contributions drive growth," he said. "Later the portfolio itself does most of the heavy lifting and that’s why the earlier someone starts investing the more powerful compounding becomes."
Certain retirement accounts can amplify that effect, according to Stroup.
“Roth IRAs with decades of tax-free growth, 401(k)s with employer matches that provide immediate return on contributions and HSAs used for retirement healthcare costs," he said.
Morris added that employer matches make early investing even more valuable “because you are getting free money from your employer."
How Late Starters Can Catch Up
While starting earlier offers a clear advantage, beginning in your mid-30s can still lead to a strong retirement plan. It just requires higher contributions.
For someone trying to catch up by starting at 35 instead of 25, they would need to invest about $10,500 per year to reach the same outcome as somebody that was investing $5,000 per year at 25, Morris said.
However, consistency matters more than trying to make up lost time through risky investments, Stroup said.
Above all, remain calm. You're not in financial trouble yet. Steve Sexton, CEO of Sexton Advisory Group, warned that panic-driven decisions can make the situation worse.
“People feel behind and swing for the fences with speculative investments, which can set you back even further," he said.
Why Many People Delay Investing Until Their 30s
Despite the benefits of starting early, there are understandable reasons many people delay investing, Morris said, such as student loan debt, high housing costs in major metropolitan areas, career instability early in adulthood and lack of financial education.
Stroup added that behavioral factors can also contribute. "Many professionals intend to start soon, but without automation or a plan, those early years pass quickly,” he said.
The Most Important Step Is Getting Started
The biggest mistake people make is believing you are permanently behind. Sexton offered relief, saying, "Just start. It is never too late to begin preparing for retirement. Get a written plan. Know your numbers. Automate your contributions so the decision is made for you every month. Pay yourself first."
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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