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Waiting to Save for Retirement Could Cost You

When it comes to saving for retirement, the clock is ticking. To illustrate the value of time, let’s consider three Roth IRA investors.

Kate, Derek, and Jane all decide to open Roth IRAs to supplement their other retirement accounts. Each investor hopes to build this account to $500,000 at the time of retirement, though they are starting to save for retirement at different ages. All plan to retire at age 65, and the investors maximize their contributions each year.

Kate contributes $6,000 annually to her Roth IRA starting at 28 while Derek begins at age 35. Because Jane doesn’t open a Roth IRA until she’s 50, she’s allowed to contribute $7,000 each year.

*People age 50 and older are allowed to include a $1,000 “catch-up” contribution.

By age 65, here’s how their savings could add up

Kate’s savings at 65 total $890,000—$390,000 more than the $500,000 goal. After saving for 30 years, Derek only has $565,000. Jane’s savings falls $310,900 short, leaving her with only $189,100, even with her catch-up contributions.

The example is hypothetical and provided for illustrative purposes only. It is not intended to represent a specific investment product. Assumes annual contribution of $6,000 until age 50, and $7,000 from age 50 to age 65; also assumes 6% average annual portfolio growth.

How you can best prepare for the future

Here’s a retirement savings rule of thumb that you can use as a directional guideline to get you started. 

If you think you’ll need $50,000 to live comfortably the first year of retirement, your total retirement savings should equal $1,250,000.

If you start saving in your 20s, contributing 10%–15% of your paycheck including a savings match—if any—from an employer will likely allow you to meet your retirement savings goal. With every decade you delay, however, you’ll need to save a greater percentage of your paycheck.

Workers 45 and older should save 35% of their earnings. With an annual salary of $50,000, that leaves $32,500 before taxes and expenses. People 40–44 should set aside 25%–35%, 30 year olds need 15%–25%, and 20-somethings can get by with 10%–15%.

Find additional ways to save

Here are some options for getting on the right track:

  • Maximize your workplace retirement plan. For 2021, the max 401(k) contribution for employees under age 50 is $19,500. Employees age 50 or over can make an additional catch-up contribution of $6,500. Be sure to take advantage of any match your company offers. 

  • Devote funds from a windfall, such as a bonus or inheritance, to an investment account geared toward your retirement.
  • Set up a taxable brokerage account to supplement your retirement savings.
  • Give your savings a boost. As your income increases, up your savings rate by 1%–3% each year. Before you know it, you’ll be savings a lot more than you thought you could.   
  • Start a Health Savings Account (HSA)—if you’re able—to help cover medical expenses, both now and later in life.1 If you don’t use the money, you won’t lose it. An HSA stays with you.

Better late than never

Invest in your future sooner rather than later. If you’re starting later in life, don’t get discouraged—there are other options that could help you reach your financial goals. All it takes is discipline and perseverance.

1You may only open and contribute to an HSA if you’re covered by a high deductible health plan. Contribution limits for 2021 are up to $3,600 for single coverage and $7,200 for family. In 2022, limits will increase to $3,650 for self-coverage and $7,300 for family. See for details.

What You Can Do Next

Important Disclosures:

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

These examples are hypothetical and provided for illustrative purposes only and are not representative of any specific investment or strategy.

Investing involves risks including possible loss of principal.

This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Charles Schwab & Co., Inc. (“Schwab”) recommends consultation with a qualified tax advisor, CPA, financial planner, or investment manager.

Diversification and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets.


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