Waiting Until Your 40s to Save for Retirement? Here's Why That's a Bad Idea


As much as we’d all like to live our lives without regrets, that’s not in the cards for most people — the odds are good you’ve had a life experience or two that you wish you hadn’t. For me, most of my regrets relate to past financial missteps, such as buying a house when I definitely couldn’t afford to be a homeowner. Another big one that’s become more significant to me as I’ve both gotten older and also learned more about personal finance is the fact that I have no retirement savings of any kind.

I opened a taxable brokerage account last year and have dipped my toes into investing to the tune of a few hundred dollars. But my main financial focus for the last year and change has been saving money to buy a home. Once I achieve that goal, I intend to open a tax-advantaged retirement account and start making regular contributions.

The reason I waited until my 40s to save for retirement was due to educational debt and a series of low-paying (but otherwise fulfilling) jobs that had me living paycheck to paycheck and unable to consider a future where I might actually be able to retire.

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Unfortunately, research from Clever Real Estate shows that 17% of people surveyed are deliberately waiting until their 40s to save for retirement because they believe that’s what they should do. To put it lightly, this is wrong — and here’s why.

The sooner you save for retirement, the better

In a perfect world, I would’ve gotten a higher-paying job right out of school and been able to pay off my education and have plenty left over to invest for retirement. But I finished graduate school during the Great Recession and was lucky to get any job in my field, period. I also would’ve saved a lot of money had I not needed to uproot my life every few years to advance my career — but that wasn’t my path.

If you’re in your 20s or 30s and can save and invest for retirement now, you absolutely should. The more time you have, the more you will benefit from the miracle of compound interest. This is when your money earns more money, which can then be reinvested and earn even more money. Over a long period (like decades), you’ll benefit even more from this principle.

Let’s say you can afford to put $250 per month ( $3,000 per year) into an IRA, and you’ll earn an average return of 10% per year over time (this is in line with the stock market’s performance over the last 50 years). Here’s what that might look like, depending on your time window:

Years You’re Investing Cash You Put in Over Time Account Balance at Retirement
20 $60,000 $173,506.87
30 $90,000 $497,844.42
40 $120,000 $1,339,092.48

Data source: Author’s calculations using Investor.gov.

As you can see, starting in your 20s and having 40 years to invest gives you a much higher account balance by the time you stop working. If you wait until your 40s to start investing and only have a 20-year time window, you won’t be retiring with anywhere near as much money.

You can save on your taxes, too

Investing earlier comes with another benefit: tax savings. If you invest in a retirement account, such as a 401(k) through your employer or an IRA you open on your own, the money goes in before taxes. You’ll be taxed on those dollars eventually, of course, but it won’t be until you start making withdrawals in retirement. Paying taxes is a societal good that benefits your fellow Americans, but if you can reduce your taxable income, that’s a win for you.

How can you get started?

If your employer offers a 401(k) plan, that’s your easiest option for retirement saving — and you might even get a match to your contributions to boot. But if you don’t have access to a 401(k), or your employer doesn’t offer a match, you can open a retirement account at a brokerage firm on your own. Check out our list of the best IRAs to find a winner. Or, if you’d rather reap your tax savings in retirement instead, consider a Roth IRA (these are funded with post-tax dollars, and you can actually withdraw your contributions any time without penalty if the account has been open for at least five years).

Once you’ve picked a great account, make investing easier by setting up automatic transfers from your checking account to your investment account. Personally, automating my finances makes me nervous (living paycheck to paycheck for years will do that to you), but this strategy is a great way to ensure that you don’t forget to contribute to the account.

And while you certainly can pick individual stocks to invest in through an IRA, doing so isn’t necessary to earn solid returns. Investing in exchange-traded funds (ETFs) will have you investing in broad market sectors, so if one company has difficulty, it won’t tank your portfolio. You can even invest in the entire market with S&P 500 ETFs.

If someone told you to wait until your 40s to save for retirement, they were sadly mistaken. Get started as soon as you can — and any amount of money invested today can grow to fund a more comfortable retirement decades from now.

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