Why Saving Early for Retirement is Important
Your retirement may not be as far off as you’d think. Saving and investing money now could have a significant impact on your future. In fact, the earlier you start investing, the more time your money has to grow. By the time you retire, you won’t have saved as much from your own pocket to reach your retirement goals.
Compound interest plays a large role in that and is a valuable tool when it comes to preparing for retirement. Compound interest is when the interest you earn on your principal investment also earns interest over time. You can think about this like a snowball effect. This means that you can start with smaller contributions and still end up with a significant amount of money saved for retirement. If you start saving in your 20s or early 30s, time is on your side. Even if you are only able to contribute a small amount each month, that money will have decades to earn compound interest and grow.
On the other hand, if you wait until your 40s or later to start saving for retirement, you’ll need to contribute more each month to catch up. This is because you have less time for compound interest to work. You’ll need to make up for the time difference with larger contributions to see the same results. This can be a challenge when you are already dealing with financial pressures like raising a family, paying off a mortgage, student loans, or other expenses.
How Starting Earlier Could Affect Your Retirement Savings
Hypothetical example assumes an 8% interest rate, compounded annually. Balances shown are approximate calculations.
In the example above, both people are contributing the same amount of money. However, the 25-year-old is taking advantage of compound interest. Even though they only made contributions for 10 years instead of 30, they still ended up with more money at age 65.
The amount you contribute each month can be a game changer for your retirement savings. By consistently saving even a small amount each month, you can take advantage of compound interest and let it do a lot of the legwork to help you reach your goals. When it comes to saving for retirement, the earlier the better. Start saving early and give compound interest more time to work.
This blog is up to date as of July 2025 and has not been updated for changes in the law, administration or current events.
