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Retirement made easy: How soon should I start saving?

Updated on March 8, 2010

Retirement made easy: How soon should I start saving?

Why it is never too soon to start saving

Having enough money to retire on is a worry for many people. In fact for most the issue is so daunting that they prefer to avoid thinking about it at all. They save if their company has an automatic opt-in to a retirement plan and they usually end up investing in whatever fund is the default for that plan.

The first, and most important decision that you can make to affect how comfortably you retire, is the decision to start saving now. I mean this. Whether you are 20 or 40 years old, you should start putting something away. Whether it is online share trading or just a simple index fund is less important than starting as soon as possible. Every month or year that goes past that you are not saving is not just a year of lost saving, but a year of lost earning and opportunity.

Why is it so important to start saving for retirement now?

The British economist and author John Kay in his recent book "The Long And The Short Of It" uses a great example. If you were a squirrel and you were saving nuts for retirement, then each nut that you wanted to have in retirement would have to be saved now. If you earned nuts and planned to work for 30 years and retire for 30 more years (let's be optimistic about how long you'll live), then you would need to save one in every two nuts that you earned. Saving half of what we make now is not a great strategy. You either go hungry now or when you retire.

But the magic of saving is that we aren't saving nuts under a tree. We are investing money in assets that will grow. Every dollar (or pound, or euro) that we save now will hopefully be worth a lot more than a dollar when we retire.

Compound growth is powerful stuff. If you assume that your savings or investments will grow at about 7% a year (which is not too far off their historical rate) then they will double in value before inflation after about 10 years (I'm rounding numbers and fudging the math, but this is close enough - so long as we leave inflation out of the equation).

  • The dollar you save now will be $2 in ten years. But then the compounding goes on...
  • In 20 years it will be $4.
  • In 30 years it will be $8
  • In 40 years it will be $16
  • in 50 years it will be $32

Just think. If your parents had put aside some of the thousands they spent on buying you junk over the years when you were a kid into a retirement fund for you, it would be worth a fortune by the time you get to 65.

Most of us, however, aren't lucky enough to had had parents with the money or the foresight to leave us with trust funds. So we have to take care of this ourselves. So that leaves you with a choice. Would you rather put aside $1 now or $8 in 30 years?

It seems a kind of no-brainer that the most important decision you can make towards a comfortable retirement is to start saving now. It is far more important than spending hours trying to choose the best mutual fund or picking stocks. Don't be afraid of taking charge now and getting your retirement finances in order. If you are not saving already, now is the time to start.

The Long And The Short of It


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    • Papajon profile image

      Papajon 7 years ago from Berlin, Germany

      Hi - I'm just back from a lovely holiday with no internet connection in a sunny place to find all these lovely comments. Thank you all for taking the time to read this and I hope the advice it offers is of some help.

    • Jayne Lancer profile image

      Jayne Lancer 7 years ago from West London, UK

      You makes a lot of sense. The prospect of retirement is a big worry to many people nowadays. An enlightening Hub.

      And congratulations on your HubNuggets nomination!

    • emievil profile image

      emievil 7 years ago from Philippines

      Congratulations on your hubnugget nomination and thanks for your wonderful tips. I'm one of those who hopes to have an early retirement so I'm still looking for ways to save more and more money. :)

    • rocknrodeogirl profile image

      rocknrodeogirl 7 years ago from The Columbia Gorge

      Good hub, and yes another "hint" that I should start thinking about retirement now...thanks for the information and congrats on your hubnugget nomination! ;)

    • Trunfio profile image

      Trunfio 7 years ago from Pacific Northwest

      Nice hub. Yes, I have about 20 years before I want to retire and so I am saving those nuts like crazy!

    • shazwellyn profile image

      shazwellyn 7 years ago from Great Britain

      Nice hub. I wrote a hub that you might want to do a recipricol link with...

      It is good to share the love!

    • Sage Williams profile image

      Sage Williams 7 years ago

      Great job on this hub, very informative and well written. Congratulations on being nominated for a HubNugget and Good Luck!


    • ripplemaker profile image

      Michelle Simtoco 7 years ago from Cebu, Philippines

      Hmmmmm more retirement ideas to read for the day. Thanks! This hub is a Hubnugget Wannabe. You have to read it and vote too. This way please:

    • Papajon profile image

      Papajon 8 years ago from Berlin, Germany

      You are so right. Inflation eats wealth rapidly. Warren Buffett, the famous investor, once compared it to a gaint tapeworm in the economy that just eats company profits.

    • ngureco profile image

      ngureco 8 years ago

      A very good hub that explains the power of compounding.

      45 years ago when I was born, my father used to pay one shilling for a bottle of Tusker beer. Today I pay 80 shillings for the same bottle of beer. I think in as much as we should do savings, we need to look at the effects of inflation.

      45 years ago when I was born, my father paid 1000 shillings for one acre of land. Today, I can sell that one acre of land for 1,000,000 shillings. This is 1000 times as much. As much as saving is good, some investments can be better.

      But there are risks that goes with every investment that one takes and these may depend on where one lives and the country.

      Thank you for answering that question.