According to this CBS article which summarizes the 2010 retirement confidence survey(pdf):
- 27% reported having less than $1,000 set aside for retirement.
- 43% reported having less than $10,000 set aside for retirement.
- 54% reported having less than $25,000 set aside for retirement.
- Only 16% of workers feel confidence they’ll have financial security in retirement.
- Only 46% of workers have calculated what their financial goals for retirement should be.
Honestly these numbers do not surprise me. The United States is not a nation of savers. The problem is a lot of people are financially illiterate and/or spendthrifts. Is it really that hard to save for retirement?
A lot of people assume they don’t need to save up for retirement because they assume Social Security will take care of them or they can always start saving up later on in life closer to retirement. They keep put off saving for retirement that one day it’s too late and they have to continue working to be able to retire comfortably.
One of the advantages to saving young is you get to take advantage of the power of compounding interest. Let’s say you put away $1,000 saved up at age 22. If you earned 5% return and added $1,200 a year to your savings you’d end up with $210,207.20. Although this probably won’t buy as much in the future due to inflation it only took roughly $100/month in savings.
I used 5% as a conservative number. If you were able to average a higher rate of return throughout the 45 years you’d see the compounding effect is quite noticable.
$1,000 starting amount (principal), $1,200 added every year, 45 years
- 5% average yearly return = $210,207.20
- 6% average yearly return = $284,374.36
- 7% average yearly return = $387,904.57
- 8% average yearly return = $532,831.73
The point here I’m trying to make is to start saving early and over the years contributing as little as $100 a month has the potential to grow into something sizable.
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