Written by Our question of the day is, “Is it too late to start saving for retirement at 35”? The quick answer is no. Of course, you cannot save the same amount per month if you had started in your 20’s. However, it is still a reasonable and achievable goal to put a plan together at 35 that can make sure you have a prosperous retirement. You just need to have the right saving for retirement plan in place.
Saving for retirement
There are plenty of options to exercise before you assume retirement is impossible. If adjusting how much you set aside each month doesn’t work, then you can look at adjusting some other part of your plan. For example, let’s say you have nothing for retirement and make $100,000 per year. If you are like most people, you want to plan on retiring on 80% of your income.
Saving 10% of income
Consider situation #1:
- $0 saved
- Plan to retire at 65 years of age
- Make $100,000 per year
- Start saving 10% of your income a year (~$830/month)
- 10% return on your investment
If you started here at 35, you would generate $1.95M by the age of 65. Feels pretty good to be a millionaire, so congrats. However, based on wanting to live off of $70,000 per year in retirement, you actually need an additional one-million dollars. This leaves you with a couple choices. First, if you are committed to your retirement lifestyle, then you should work an additional one to five years. This will ensure you can maintain your lifestyle in retirement.
Working another five years would increase your assets from $1.95M to $3.26M. Just another five years of working transformed your $1M shortfall into a $500K surplus. You could also consider allocating more money towards lowering your expenses so you can retire on less. While maintaining your same retirement lifestyle. There is also the option of changing the state you retire in. If you live a state with a higher cost of living, then moving to a lower cost of living state could be very beneficial.
Saving 20% of income
Consider situation #2:
- $0 saved
- Plan to retire at 65 years of age
- Make $100,000 per year
- Start saving 20% of your income a year (~$1,670/month)
- 10% return on your investment
The other option available is for you to increase the amount you are investing each month. Instead of 10% of your income, what if you invested 20% of your income annually? Now, you will have $3.9M saved when you reach 65 years of age. You’ve exceeded your retirement goal by almost one-million dollars this time. If you wanted, you now have the option of retiring a little earlier at the age of 62.
Saving 30% of income
If you are someone who is interested in following the F.I.R.E. (Financial Independence, Retire Early). The F.I.R.E. approach is where people are saving a significant portion of their salary each year so they can retire in their much earlier. It really comes down to what are you sacrificing in the short-term to achieve your long-term goal? If you can allocate 30% of your income towards your retirement, you can expect the following:
Consider situation #3:
- $0 saved
- Plan to retire at 65 years of age
- Make $100,000 per year
- Start saving 30% of your income a year (~$2,500/month)
- 10% return on your investment
If you can save 30% of your income each year, you will have generated $5.86M by 65. This option would give you the option of retiring before 60 if you stick to your $3M plan.
Some extra things to consider
Now, we haven’t even considered Social Security. My preference is to plan as if Social Security won’t be around and be pleasantly surprised if it is. If Social Security is still around, that is another stream of income you can use.
We also didn’t consider inflation in our calculations. Inflation averages about 3% per year. If you ignore inflation, you risk losing your ability to make purchases. If you lose 3% of your income every year, in 17-years you will lose half of your income. In other words, what costs $100 to purchase today, will cost $200 in 17 years.
Inflation isn’t all bad
One way inflation can help you is with different loans you have. For example, if you have a 30 year mortgage for $2,000 today. That $2,000 is going to feel like a car payment in 17 years. In other words, $2,000 is going to be a relatively smaller payment in the future.
On the other end, you also have where we’re assuming a 3% inflation each year and a 3% inflation in, in the times that we are in it. It’s something that you’re gonna be like, okay. I, I believe it. That’s important to consider inflation. Statistically speaking, as I’ve, I’ve mentioned in a previous video, if you aren’t considering inflation in your plan, you have to understand that every two, two decades, I mean, roughly it’s like 17 years, but every two decades you’re purchasing power or cuts in half.
Final thoughts
You can start saving for retirement at any age. While it may be easier the earlier you start, it is not impossible to start saving for retirement at 35. You always have have the option to save more or spend less to maintain your retirement goals. However, if you also have the option to push your retirement date back a few years. Saving for retirement is a puzzle you can put together with proper planning and clear goals.