Why You Should Start Investing Early for Retirement

Compound interest allows your investments to grow exponentially over time.


11/2/20232 min read

green coconut tree on beach during daytime
green coconut tree on beach during daytime

Retirement may seem like a distant goal, but the truth is that the earlier you start investing for it, the better off you'll be in the long run. In this blog post, we'll discuss the importance of starting to invest early for retirement and how much on average is a good idea to save.

The Power of Compound Interest

One of the key reasons why you should start investing early for retirement is the power of compound interest. Compound interest allows your investments to grow exponentially over time. By starting early, you give your investments more time to compound and generate significant returns.

Let's take a look at an example to understand the power of compound interest. Suppose you start investing $500 per month at the age of 25 and continue until you retire at 65. Assuming an average annual return of 7%, your investments would grow to over $1.2 million by the time you retire. On the other hand, if you wait until you're 35 to start investing the same amount, your investments would only grow to around $570,000. The ten-year difference in starting early results in a substantial difference in your retirement savings.

The Benefits of Starting Early

Aside from the power of compound interest, starting to invest early for retirement offers several other benefits:

  • More time to recover from market downturns: Investing early gives you a longer time horizon to recover from any market downturns or economic recessions. This reduces the impact of short-term fluctuations on your long-term investment returns.

  • Lower monthly savings requirement: By starting early, you can take advantage of the power of compounding and save smaller amounts each month to achieve your retirement goals. This makes it more manageable to save for retirement, especially if you have other financial obligations.

  • Greater flexibility and financial security: Starting early allows you to build a larger retirement nest egg, providing you with greater financial security and flexibility in your retirement years. You'll have more options when it comes to retirement lifestyle choices and unforeseen expenses.

How Much Should You Save?

The amount you should save for retirement depends on various factors, such as your desired retirement lifestyle, expected expenses, and retirement age. However, a general guideline is to save at least 10-15% of your annual income for retirement.

If you're starting early, you can aim to save closer to 15% or even more if possible. This higher savings rate will help compensate for any fluctuations in the market and give you a larger retirement fund to rely on.

Check out FREE Retirement Calculator to see how much you could save!

Starting to invest early for retirement is a smart financial decision that can significantly impact your future financial well-being. The power of compound interest and the benefits of starting early make it clear why you should prioritize saving for retirement as soon as possible. Remember, the sooner you start, the more time your investments have to grow and secure a comfortable retirement for you.