Man working in bicycle shop

When you’re new to the workforce, retirement savings advice can seem unrealistic. According to many experts, by age 30 you should be saving between 50% to 100% of your annual salary towards retirement. But that can seem like an impossible amount at a time when you may just be beginning to settle into your career and you have more pressing financial goals, like paying down student debt, financing a wedding, or saving for a down payment on a home. You have the rest of your career to save for retirement, so why can’t you postpone when to start saving for retirement?

"According to many experts, by age 30 you should be saving between 50% to 100% of your annual salary towards retirement."

Saving the right amount for retirement is complicated and it can be difficult to answer the question: When should you start saving for retirement? You have immediate goals that you need to meet, like paying off student loans, and you want to enjoy your life too. That’s perfectly understandable. But saving for retirement is a marathon, and time is of the essence. The power of compound interest means that any money you save now will be worth much more by the time you retire. If you wait too long to start saving, you could find yourself investing twice as much and still not catching up.

So, the answer for when to start saving for retirement is now. But the amount doesn’t have to be huge. You can start by investing a small recurring amount in a retirement savings vehicle, while continuing to focus primarily on your other goals. If you invest continuously, even if it’s a small amount, over time you can build valuable savings without disrupting your lifestyle now.

Balance retirement saving with paying off debt

If you have debt you’re working to pay down, you can increase the amount you’re contributing to your retirement savings as your debt gets smaller. Once you’re in a rhythm of making payments, consider how to best allocate the amounts. Put more than the minimum toward debt in order to stay ahead of the interest, and put at least a minimal amount toward retirement to get started on the right track. You can start small by putting 1% of your pay toward a retirement fund, then aim to increase it one percentage point at regular intervals. The easiest way to do this is to automate deposits directly from your paycheck.

Choose a savings option and get your workplace match

If your workplace has a 401(k) matching program, you should contribute at least enough to get the full company match. This is your minimum. A 401(k) match is extra money on top of your salary, and while you can’t predict the rate of return on your investments, the matching funds from your employer can be a significant “guaranteed” return. Even if you can’t afford to save anything else for retirement, commit to investing enough to get this match.

Another option is a Roth IRA, in which your contributions are made after your income is taxed. Your savings then grow tax free over time. These accounts can be a good option for early-career professionals who expect to be in a higher tax bracket later in life. There are income limits that determine who can qualify for a Roth IRA, and annual contributions max out at $6,000 per year, based on 2020 limits, but most younger investors will find a Roth IRA a worthwhile investment.

By paying taxes now, rather than later, you can save a significant amount of money in the long run.

  • Keep in mind, contributions to a Roth IRA may generally be withdrawn at any time without tax consequences.
  • Earnings may generally be withdrawn tax-free if the account is held at least 5 years and withdrawals are made after the account owner reaches age 59 ½.
  • If earnings withdrawals are made before the 5-year period or age 59 ½, income taxes are due and a 10% federal tax penalty may apply.

Please consult your tax advisor for additional information.

Consider whole life insurance

Whole life insurance provides several different benefits and advantages, such as lifetime insurance protection, as long as premiums are paid when due. A life insurance policy costs less when you’re young and healthy, so you’re able to lock in a low premium. You keep that premium for life and always have the same protection. The policy can also be used to supplement your retirement income as your life insurance needs decrease later in life. A whole life policy from New York Life offers a cash accumulation feature that you can access as your needs change over time. This growth component, called the cash value, grows tax-deferred over time—and you can use it for any type of expense, like a home, retirement spending, or sending your child to college. Money you access from your whole life policy—up to the policy basis (the amount of premiums you’ve paid)—is generally not taxed. Accessing cash value does reduce the death benefit and available cash surrender value.

Additionally, with a whole life insurance policy, you’re also eligible to receive annual dividends, which you can use as you wish. While dividends are not guaranteed, New York Life has paid them to shareholders every year for 166 years.

Don’t over-compromise your lifestyle

Saving for retirement isn’t easy. It’s even harder when you’re trying to pay off student loans as you save. Remember that progress is made over time, so the earlier you start, the greater the future growth of your savings. Do what you can, and be realistic. You don’t need to sacrifice important life moments and experiences in order to reach your savings goals. Just save at least the minimum to get the full company match on your 401(k), and recalibrate your retirement contributions whenever you can.

Interested in discussing this topic with a financial advisor?

Connect with a New York Life financial services professional today for honest, human guidance, and learn more about the ways to optimize your retirement savings over time.