Start Saving Early for Retirement: Tips for Young People Just Starting Out

‘The time to start saving for retirement is yesterday’ quipped the financial advisor. The second-best time to start is today!

The longer you save for retirement, the more money you will have to retire on, even if the amounts saved are quite small in the beginning. This article looks at the reasons an early start to retirement saving is so vital and why so many people just don’t get it.

In a recent US survey of 1,153 retirees and workers, the results showed that nearly half (43%) had retirement savings of under $10,000, excluding their pension and home. Unless you only intend to live for a year after you retire, $10,000 isn’t going to get you very far.

In another survey of nearly 10,000 people, 34% stated that they were not contributing to any type of retirement account; 31% claimed they were saving just 1% to 6% of their income; only 8% were saving more than the recommended 15% for their retirement.

These surveys show quite clearly that a huge section of the working population is not making any contribution towards their retirement funding. In this day and age, it is certainly not a good idea to sit back and hope to rely on government pensions either. With the population aging, there simply won’t be enough people working and paying taxes to fund any government support of retirees.

Why are so many people not saving for their own retirement? In other surveys, these are some of the reasons people give –

– “I’m young, I just want to have fun; there’s still plenty of time.”

– “Retirement seems so far away; there’s no real urgency.”

– “I don’t earn enough to be able to put anything away for retirement.”

– “With the rising cost of living, I am having trouble making ends met, let alone putting anything aside for the future.”

– “My boss doesn’t have a 401K for me to join.”

You want to plan to retire from work, not from life. Retirement is supposed to be the best time in your life; a time that you look forward to with eager anticipation, not dread.

Unless you want to work until the day you die, you are going to need some savings to fund the years you no longer earn an income. Whether you want to retire early or work well after the retirement age, you will need to have saved enough to enable you to continue to live in the manner to which you have become accustomed. How many years will you be retired?

If you have no retirement fund, your quality of life could well be affected. It might mean living frugally, hoping you have enough for the bare necessities of life. I don’t think I’d like to live like this, but it is how many people have to. Unfortunately, it is going to be the reality of thousands of people in the future as well. 

Why should I start retirement saving early?” is a common question from young people still in high school or college, in their first job or just starting out in their career. They might have a part-time job to help pay their way through school or they may have started full-time employment for the first time. They have money to spend and the last thing on their minds is retirement.

Do you know anyone who fits this scenario? I know I do.

For a number of years, financial experts have been advising young people to set up a retirement savings account right from when they first start paid work. The ones who listen will be glad they did.

There are numerous scenarios that show the exponential growth of small amounts of savings over the working life of an individual. Even very small amounts from each pay packet, invested in a savings account, can grow to a healthy retirement income. The key is the length of time and the regularity of savings.

Here are some tips about starting early to save for your retirement years.

1. First, you’ve got to make a commitment to set aside a small amount from every pay check to fund your retirement. Have it automatically deposited into a retirement or high yield savings account.

The way to work out how much you can save is to create a simple budget that includes all your expenses and income. Even just $5 a week from your first part-time job at McDonalds is a great start and you are way ahead of most kids your age. If there’s no money for this, look at ways to cut back your spending, even by just a few dollars a week.

2. When you start your first full-time job, ask your boss whether they offer a retirement plan. Some employers will match your own contributions to your 401k or RRSP, up to certain limits, so this is extra incentive for you. Otherwise, ask about getting help to establish retirement account. There may be conditions or a qualifying period for these, so get all the information.

Why start early? Here’s a scenario that tells you –

  • If you start saving $100 per month from age 25, your retirement account would hold $379,000 when you are 60.
  • If you didn’t start saving the $100 until you were 35, you would have only $132,000.

Look at the difference the 10 years makes! As you earn more, you will increase your contributions and your retirement income grows exponentially.

This is your financial future we are talking about here. While it may seem a long time off, take a serious approach to it now, so you won’t have to worry later.

So readers, two questions today:

1. At what age did you start saving for retirement and what strategies did you use?

2. If you haven’t started saving for retirement, why?

PS: Don’t forget to check out the new “Share Your Voice” section on the PET homepage


Start Saving Early for Retirement: Tips for Young People Just Starting Out — 44 Comments

    • I would agree Sam. The numbers probably are worse than they say. I work with stats for a living so I am well aware that numbers can be skewed to say whatever you want them to say. I would guess that in actuality the number is close to 20-25% of people only have $10,000 saved for retirement. We have to remember that media also works to spin consumerism and support the buying habits of people so that companies can pay big bucks on marketing contracts.
      People need to wake up and really take a look at their current situation including finances. No rose coloured glasses, just cold hard facts. If people did this they would scare themselves enough to actually make some positive changes in their life.

  1. I started saving for retirement as soon as I began my professional career, at 23 years old. I contributed 6% of my salary to my 401(k)- the maximum amount my employer would match. Looking back, I wish I’d saved 15% of my income in my company’s 401(k). A lot of financial experts recommend you contribute the maximum your employer will match and put the remaining amount you have available to invest in an IRA. Well, I never got around to setting up that IRA so this strategy didn’t help me at all. Should’ve just kept it simple.

  2. Though I have a pension, I don’t have any other retirement savings. Have been focused on paying off debt, which is costing me more in interest than I could likely earn by saving/investing. Never too early to start kids with saving, then they can avoid debt and have a headstart when they graduate.

    • I think you are being smart. Like you say, the cost in interest is worse. What works good though is once you have paid off your debt, just transfer that same monthly payment to your savings. You won’t miss it since you are used to not having it and you will be making a big impact on your nest egg.

    • Scary if you haven’t planned for that, yes, however if you have diversified your savings and not relied on these pensions, you will do just fine. We need to look after ourselves. It isn’t anyone else’s job, including the government’s.

  3. I started when I was 25, but I wasn’t able to fully fund anything until just 3 years ago due to paying off credit card debt, etc. Thankfully, I have a great base and am now focused on saving as much as possible!

  4. Those U.S. government surveys are pretty startling, but they’re not surprising. The reasons stated for why most people don’t have a retirement savings seem to be quite accurate. However, I think the main reason most people don’t start saving early is mainly because of their negative financial influences and limited financial education. If you were to spend a lot of your time around those who are good savers, chances are you would become a good saver yourself. Needless to say, the reverse is also true.

    The takeaway is that for most people, it comes down to who their financial influencers were throughout their lives.

    • I would agree. People are a product of their upbringing and if they haven’t had a good example to follow they in a sense don’t know any better. However, I also believe as adults we can take accountability for ourselves which means we can expand our knowledge around good money management in this case, and improve our situation.

  5. Great post! I started saving for retirement when I first started working, at 22. My company matches 3% no matter what, so it didn’t matter how much I contributed. I went with 5% and then towards my roth IRA, I contributed an additional 8% each month.

    • In principle and it some cases you are right but there are some people who need hard fast lines to get themselves in the habit and to start making progress. Otherwise they just keep getting distracted and never actually do what they need to do.

      You do need a quality of life though but that can be obtained through things that don’t cost money.

  6. I started when I was 22 at my first job after I graduated college. I maxed out my Roth IRA the first year and have been increasing my contributions ever since! I am so glad I read financial blogs and was able to get ahead on my retirement savings. I invest in target date funds because they match my risk level and I’ll monitor them as they start changing asset allocation percents. They also have low fees.

  7. I’m always amazed that people don’t save for their retirement – or don’t save very much. I started saving as soon as I graduated, and have been steady ever since, but I don’t feel like I’m close to the 1 million or more I’m supposed to have.. 🙂

  8. I started saving at age 22 with my first full-time job. I didn’t have access to a 401(k) (or match) so I started a Roth IRA. We’re now saving around 17% of our income into our IRAs.

  9. It is difficult as a young person trying to weigh the benefits of paying down debt vs starting up a nice retirement portfolio. I think credit card debt has to be paid down before any other consideration (for obvious ROI reasons), but after that, it becomes a matter of debate. For me personally, I have an automatic plan at work (teacher’s pension) that I started paying into at 22. I have been paying down my mortgage aggressively to get to the 20% equity mark so that I have some options when I renew my mortgage. I had planned to start my TFSA up, but a pretty great option to expand my blogging income popped up so I invested in that instead 😉

    • I agree with you. Credit card debt and high interest definiely plays a role in what you work on first. However I think one should still have saving on the brain so to speak. It should be a priority when you are young.

      Sounds like you are doing pretty great for yourself. I think we are in a similar situation. We also have a pension with our jobs which really is a great bonus. It lets us work on other things sooner.

  10. I think that it is very important for young people to start early too. I think Generation Y has been particularly scared away from the stock market too. This is typical for recessionary or depressed economies. I hope that there’s a collective shock to the core of of the dangers of NOT saving/investing for retirement as well.

  11. I received an IRA for my 21st birthday with a $1,000 start. I’m still 21 and by the end of this summer I will have saved $2,300 in the first year of having the account. I hope to contribute at least $150-$200 a month from now until graduation and around 15-18% of my income when I graduate college. I am hopeful for the future and would like to have an early and prosperous retirement. Wish me luck!

    • This is fantastic. It is great that you are getting started as soon as you can with saving. I think $150-200 a month is reasonable while you are in college. I wouldn’t try to do more as that might be realistic. If you can get into the saving habit while in college where you can have tons of temptations to spend, you will be just fine down the road.

  12. I’m still young and the thought of saving or investing in a pension fund is just daunting to me. My plan is to invest in property, sub-let, then by the time I retire I should have several properties in which to sell and fund my retirement. Could be a gamble though, but hey, if you’re not living on the edge you’re taking up too much space right?

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