How Much Waiting Until 45 To Invest Costs You in Retirement

If you wait until age 45 to start investing, you’re giving up the tremendous advantage of time and compound interest that younger investors enjoy.  While you still have time to save for retirement, you’ll have to contribute a lot more money to get to where you want to be than if you started at 25.

In addition to missing out on years of compound growth, waiting until 45 also means potentially missing the best source of “free money” in investing: the 401(k) employer match. 

When you put it all together, you might lose hundreds of thousands of dollars waiting until 45 to invest for retirement. 

Here’s how.

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Investing $300 Per Month

For the sake of these examples, assume you invest $300 per month, earn an average annual return of 7% and retire at age 65. Certainly, actual returns will vary and the stock market rarely provides the same return in any given year, but over the long run, these are reasonable assumptions.

If you start investing at 25, you’d have 40 years to let your money grow. By 65, your account could be worth about $787,000, according to Ramsey Solutions' investment calculator.

But if you wait until 45, you only have 20 years for your money to accumulate and compound. At the same $300 per month and 7% average return, you’d end up with about $156,000 instead.

That means waiting until 45 could cost you roughly $631,000 compared with starting at 25.

Here’s how the numbers compare:

What’s most telling about these numbers is the percentage of your final balance that comes from growth, rather than contributions.

If you invest $300 per month starting at 25, for example, you contribute $144,000 over 40 years. If you wait until 45, you contribute exactly half as much ($72,000).

Under that scenario, you might expect your final balance to be roughly double if you start at age 25, since you contributed twice as much. But thanks to the power of compound growth, you end up with roughly five times as much money, not merely two times.

What If You Have a 401(k) Match?

The numbers can get even bigger if you have access to a 401(k) with an employer match.

Assume you earn $60,000 per year, contribute 6% of your salary to your 401(k) and your employer matches 50% of your contribution, up to that 6%. That means you invest $3,600 per year (or $300 per month) and your employer adds another $1,800 per year (or $150 per month).

Together, that’s $450 per month going into your retirement account.

Using the same 7% average annual return and retirement at 65, starting at 25 could leave you with about $1.18 million.

Waiting until 45 could leave you with about $234,000.

That’s a difference of roughly $947,000.

Here’s how that difference would break down by starting age.

The employer match matters because it’s essentially free money that’s deposited in your account to grow and compound. If you wait to invest until you reach 45, you’ll miss out on 20 years of employer contributions compared with someone who started at 25.

Starting at 45 Isn’t Too Late

Clearly, it’s better to begin investing at 25 instead of 45. But this doesn’t mean that the game is up if you’re middle-aged and behind on savings.

Starting now is always better than starting in the future, regardless of when “now” is. 

In the basic example above, investing $300 per month from 45 to 65 could still grow to about $156,000. With a 401(k) match, you might be looking at closer to $234,000.

That’s still a lot better than retiring with $0 and trying to scrape by on Social Security.

And in some ways, older investors have an advantage over younger ones. For starters, you’re likely earning a lot more money than when you were 25, so socking more aside might not feel as painful to your daily budget. Workers 50 and up can also take advantage of catch-up contributions, adding an extra $1,100 per year to IRA accounts and $8,000 to 401(k) plans, per the IRS.

Put it all together and 45-year-olds who are dedicated to their investments can play catch-up in a hurry. But it’s a commitment you’ll have to make.

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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