Absolute truths are a rare commodity in personal finance. Everybody’s situation is different due to factors such as income, expenses, location, age, risk tolerance, goals, and other energy forces that affect how we manage our money. However, one thing is certain: There are at least three real benefits to saving early for retirement.
1. Reaching retirement sooner
Spending less money than you earn and investing the difference is the cornerstone for building retirement plans. If you can accomplish this early in life, you’ll significantly increase the odds of reaching financial independence at a younger age. A recent survey from MoneyRates.com finds that people who start saving for retirement in their 20s are 66% more likely to say they’ll reach retirement by age 60 than people who waited until their 30s to begin saving. This is not too surprising given the effect of compounding returns, which we’ll take a look at later in this article. However, only 27% of respondents started saving for retirement in their 20s.
Women stand to benefit more than men from improved saving habits. Twenty-five percent of women start saving in their 20s, compared to 30% of men. This also leads to greater retirement uncertainty. In fact, 78% of the men in the survey expect to retire by age 70, but only 57% of women say the same.