If you start saving at 25, you could have $1 million by the time you retire
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Planning for retirement often takes a backseat, but recent insights from the Milken Institute emphasize the importance of early action.
The think tank’s report shows the ideal age to kickstart your retirement savings journey and why starting early can significantly impact your financial security in your later years.
The Milken Institute report underscores the power of compounding. And it recommends starting retirement savings at 25 or younger to ensure that assets grow to at least $1 million by age 65. But what’s the math behind this advice?
The Milken Institute report underscores the power of compounding. And it recommends starting retirement savings at 25 or younger to ensure that assets grow to at least $1 million by age 65.
What is compounding?
Compounding is where interest earned on an initial investment is reinvested along with the original savings, leading to exponential growth. For instance, a 25-year-old saving $100 weekly with a seven percent annual return could retire with around $1.1 million by 65 years old.
Despite the clear benefits of early saving, many Americans face hurdles that postpone their retirement savings journey. Generations like baby boomers and Gen X often began saving later, impacting their final savings amount. For example, a 35-year-old starting to save $100 per week may only amass $300,000 by age 65.
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— Milken Institute (@MilkenInstitute) August 29, 2023
The report also highlights the retirement gap, influenced by factors like lower earnings, gender disparities, and low savings rates among certain groups. Women, who often earn less and take breaks for caregiving, encounter difficulties in saving. Low-income workers struggle to save, with just 1 in 10 having retirement savings.
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Milken Institute’s report doesn’t just point out challenges, it also offers solutions—some of which include improving access to retirement accounts, promoting financial literacy, and educating individuals about the power of compounding to motivate early savings.
Additionally, the report suggests supporting government initiatives like the Secure 2.0 Act to auto-enroll employees in retirement plans and leveraging financial technology tools like robo-advisers for smarter saving and investing.
These measures aim to empower individuals to secure their financial future and work towards the goal of a comfortable retirement.
