Why Timing Matters in Your Average Retirement Savings by Age

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 the accumulated interest over time, which significantly enhances the growth of your investment.

By understanding average retirement savings by age, you can better gauge how much more you might need to save if you delay important financial decisions. Bob’s case shows that even if you have average retirement savings for your age group, waiting can still lead to higher costs and greater financial risks.

Comparing Strategies: Securing Guaranteed Income vs. The Safe Withdrawal Rate

For those who are considering alternatives, the safe withdrawal rate is another popular retirement strategy. This method typically involves withdrawing 4% of your retirement savings annually, adjusted for inflation, to ensure that your money lasts throughout retirement. However, this strategy comes with its own risks, especially if your retirement savings are only average for your age.

Let’s revisit Savvy Sue. Suppose she had chosen the safe withdrawal method instead of securing her income early. To generate the same $25,000 annual income, Sue would need to ensure her investments earn a net annual return of 9.10% after fees. While possible, this level of return is not guaranteed and requires significant risk. In contrast, securing guaranteed income provides a more predictable and stable financial foundation.

For those whose savings are at or below the average retirement savings by age, relying solely on the safe withdrawal rate could be risky, especially during market downturns. In such cases, you may need to withdraw more than planned, potentially depleting your savings faster than expected.

Balancing Your Retirement Strategy with Average Savings Benchmarks

Understanding average retirement savings by age helps you set realistic expectations and goals for your retirement planning. However, it’s also important to recognize that timing plays a crucial role in determining your overall retirement security. Even if your savings are average, delaying key financial decisions can lead to higher costs and greater uncertainty.

Securing a guaranteed income early on can help mitigate these risks, providing peace of mind and a stable financial future. By starting early and understanding how your savings compare to the average retirement savings by age, you can better position yourself for a successful and comfortable retirement.

The Psychological Impact of Financial Security

Beyond the financial numbers, the psychological benefits of securing your retirement income early are significant. Knowing that you have a guaranteed income stream can reduce stress and allow you to enjoy your retirement without constantly worrying about market fluctuations or outliving your savings. This sense of security is invaluable, especially as you approach retirement age.

Conclusion: Don’t Let the Cost of Waiting Undermine Your Retirement

While understanding the average retirement savings by age is important, it’s just one piece of the puzzle. Timing is equally critical, and the cost of waiting can have a substantial impact on your retirement planning. As demonstrated by the examples of Savvy Sue and Cautious Bob, delaying decisions about securing guaranteed income can lead to significantly higher costs.

The best way to ensure a comfortable retirement is to start planning early. By doing so, you can take advantage of compounding interest, reduce the amount you need to invest, and secure a more predictable and stable income for your retirement years. The future may be uncertain, but with the right approach, you can ensure it’s financially secure.

Your retirement is one of the most important journeys of your life. Don’t let the cost of waiting undermine your plans. Take action today, compare your savings to the average retirement savings by age, and make informed decisions to secure your future.

This material is for informational purposes only and does not constitute a recommendation to buy, sell, hold, or rollover any asset. It does not take into account the specific financial circumstances, investment objectives, risk tolerance, or needs of any individual. The product mentioned herein is an actual financial product; however, in providing this information, we are not acting as your fiduciary as defined by the Department of Labor. We do not offer legal, investment, or tax advice, nor do we make specific recommendations regarding insurance or investment products. For personalized advice, please consult a qualified professional.

Planning for retirement is complex and requires a personalized approach. Understanding your unique needs, factoring in longevity, and employing strategic financial planning can help ensure that your retirement years are financially secure and fulfilling.
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🧑‍💼Authored by Brent Meyer, founder and president of SafeMoney.com, with over 20 years of experience in retirement planning and annuities.