Financial planners and personal finance experts agree: The time to start planning for retirement is in your early 20s — or just as soon as you possibly can.
That’s because planning for retirement — no matter when you begin — offers numerous benefits. Chief among them is that you’ll have dependable savings on hand in case of unexpected life expenses, as well as a safety net for your later years.
Creating Your Nest Egg
Experts stress their understanding of how difficult of a proposition saving for the distant future might seem when a young person might be struggling even to cover rent and food while also possibly balancing student loan debt. But, a financial planner tells Time MONEY, thinking about retirement early can make a striking difference in a person’s financial future. Why? Because the sooner you start socking money away, the more time your money has to grow.
Employer-offered 401(k) programs are a popular way for individuals to save for retirement, especially if your company matches contributions. 401(k)s and individual retirement accounts (IRAs) allow you to defer paying taxes on the money you put away. Anything you put toward retirement savings on your own could pad out what you might receive in Social Security benefits — which, as the government agency notes, “provide valuable protection against outliving savings and other sources of retirement income” since they last as long as you live. Since everyone’s situation is different, it’s best to speak to a professional financial planner or adviser to determine the best plan of action for your own retirement.
Why Saving for Unexpected Expenses Is Important
When you retire, you’re planning to live on a fixed income — and you’ve likely undertaken specific savings efforts to create enough so that you can achieve your goals, whether those include daily golf outings, trips to Hawaii, or spending more time with grandkids.
But sometimes life gets in the way of our most carefully organized strategies, and one of the biggest unexpected expenses for retired people are healthcare costs. Exact numbers vary from survey to survey, but no matter what, they amount to hundreds of thousands of dollars. According to a CNBC report on a survey conducted by Fidelity, a healthy 65-year-old couple retiring today will need at least $280,000 to cover their healthcare costs — a single man needs at least $133,000 and a single woman needs at least $147,000.
Meanwhile, a group of economists researching the matter on behalf of the National Bureau of Economic Research wrote in a 2018 paper called “The Lifetime Medical Spending of Retirees” that “households who turned 70 in 1992 will on average incur $122,000 in medical spending, including Medicaid payments, over their remaining lives. At the top tail, 5 percent of households will incur more than $300,000, and 1 percent of households will incur over $600,000 in medical spending inclusive of Medicaid.” Personal finance experts tell CNBC that it’s advisable to factor health care costs into your overall retirement planning so that you can adjust your savings strategy accordingly.
At the end of the day, it’s best to speak with a professional who can help you dive into the details of your unique situation as a future retiree.