Why Timing Matters in Retirement Savings

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: Discover why timing is crucial for your retirement savings. Learn how to optimize your strategy for a secure future. Explore safe money alternatives today! When it comes to planning for retirement, understanding how your savings stack up against the average retirement savings by age is crucial. Many people delay making important financial decisions, not realizing the significant impact that waiting can have on their retirement security. This article explores how your timing, in comparison to the average retirement savings by age, can affect your ability to achieve a stable and guaranteed income in retirement. Understanding Average Retirement Savings by Age Knowing the average retirement savings by age can help you assess whether you’re on track for retirement. For example, if you’re 40 years old and your retirement savings are close to the average for your age group, you might feel reassured. However, even if your savings are average, the timing of when you secure your retirement income can have a profound impact on your future financial security. The Cost of Waiting: A Closer Look Consider two hypothetical 40-year-old individuals, Savvy Sue and Cautious Bob. Both want to retire at 60 and aim to generate an additional $25,000 in annual lifetime income. Despite both having average retirement savings for their age, their approaches to securing this income differ. Sue decides to lock in her retirement income at age 40, while Bob delays his decision until age 50. While Sue secures her income with a one-time investment of $109,505 at age 40, Bob’s decision to wait until age 50 significantly increases his required investment. By the time Bob decides to secure his retirement income, he needs to invest $205,558—an 88% increase compared to Sue’s investment. This difference illustrates the high cost of waiting and underscores why understanding the average retirement savings by age is only part of the equation; timing is just as critical. How Compounding Interest Affects Your Retirement Savings One reason Bob faces a much higher cost is the effect of compounding interest. When you start early, as Sue did, your money has more time to grow, and compounding interest can work in your favor. Compounding interest allows your savings to earn interest on both the principal amount and th