A lesson for young workers: Save as much as you can now

Here is a lesson to keep repeating to your children and grandchildren: it is easier to save $381 per month toward retirement than to save $5,778 per month. Seems simple, doesn’t it? Yet it might be the hardest financial chore a young person can undertake. The reward, however, is a secure retirement, rather than a decision to keep working or live in poverty.

First, here is where the monthly savings numbers come from: A 25-year-old worker who wants to accumulate $1 million by age 65, and who expects to make 7 percent a year, needs to put away $381 per month. However, the worker who delays retirement saving until age 55 must put away $5,778 per month – or $69,336 per year at age 55 – to get to that $1 million goal. It is all about compounding of gains, of course: the much longer period a young worker has until retirement allows his or her savings to grow substantially over the years. In fact, the first $381 the worker puts away is the most important: It will grow to $6,215 in 40 years.

Savers who start early get a break later in life: it may be very hard to come up with $381 per month at age 25, but as they age and inflation and salary increases occur, it will become a snap to put that money away in later years. In fact, that will free up cash flow in later years to handle the increased expenses of raising and educating children. Even if a young worker cannot save that ideal amount right away, saving as much as possible each month and then regularly increasing that monthly amount will let them achieve their goals. The worst move is to wait until later in life to start saving.