When Is the Best Time to Start Saving for Retirement?

When is the best time to start saving for retirement? The short answer is simple: as early as you can.

The longer answer is more encouraging. If you didn't start saving in your 20s, you haven't missed your opportunity. Starting in your 30s, 40s, 50s or even 60s can still make a meaningful difference to your retirement.

The important thing is to understand how much time you have, how much you can realistically save, where you should save it, and what retirement income you'll eventually need.

Start Saving Early: The Power of Compound Growth

One of the biggest advantages of starting early is compound growth. When your investments earn returns, those returns can themselves generate additional returns over time.

This means that time can be just as important as the amount you contribute.

Consider a simplified example. Suppose someone invests $5,000 per year and earns an average annual return of 7%, with all returns reinvested:

• Starting at age 25 and contributing for 40 years could produce roughly $1.0 million.
• Starting at age 35 and contributing for 30 years could produce roughly $472,000.

These are hypothetical illustrations, not guaranteed investment results. Actual returns vary, and investment fees, taxes, inflation and changes in contributions can significantly affect the outcome.

The lesson is not that everyone needs to save exactly $5,000 per year. It's that starting earlier gives your money more time to work.

The Retirementize income calculator can help you see how different savings amounts, retirement ages and investment assumptions can affect your projected retirement income.

The "Too Late" Myth

One of the biggest mistakes people can make is deciding that they're already too far behind to do anything.

If you're in your 40s or 50s and your retirement savings aren't where you want them to be, the answer isn't to give up. It may mean increasing your savings rate, working a little longer, reducing future spending, changing your investment strategy, delaying government benefits or considering additional sources of retirement income.

Strategies such as the four percent rule and income from rental properties can be part of the discussion, but neither should be treated as a one-size-fits-all solution.

When Should You Start Saving for Retirement?

Ideally, retirement saving begins as soon as you have earned income and enough financial stability to start putting money aside consistently.

But different life stages call for different priorities.

In Your 20s: Build the Habit

Your 20s provide one of the most valuable retirement assets: time.

You may not be able to save a large percentage of your income yet. Student loans, housing costs, starting a family and establishing a career can all compete for your money.

That's okay. The goal is to establish the habit of saving and take advantage of employer matching programs when available.

Even relatively small contributions can become meaningful when they remain invested for several decades.

In Your 30s: Increase the Savings Rate

Your 30s are often when income begins to increase, but expenses can increase too. Mortgage payments, children, childcare and lifestyle upgrades can make it easy to postpone retirement planning.

If you've already started saving, look for opportunities to gradually increase your contribution rate as your income rises.

If you haven't started, don't wait for the "perfect" financial situation. Start with an amount you can sustain and increase it over time.

In Your 40s: Time to Get Serious

Your 40s are an important checkpoint. Retirement may still be 15 to 25 years away, but the number of years available for compounding is shrinking.

This is a good time to examine your entire retirement plan:

• How much are you saving each year?
• What retirement age are you targeting?
• How much income will you actually need?
• How much could government benefits provide?
• Do you have an employer pension?
• Are your investments appropriate for your time horizon?
• How much debt will you carry into retirement?

Our Retirement Planning Mistakes guide can help identify some of the common problems that can derail a retirement plan.

In Your 50s: Make Up for Lost Time

If you're in your 50s and haven't saved enough, you may need to become much more intentional about retirement.

This can include increasing contributions, taking advantage of available catch-up contributions, reviewing expenses, paying down expensive debt and reconsidering your planned retirement date.

In the United States, workers age 50 and older can generally make additional catch-up contributions to eligible retirement plans, subject to annual IRS limits. Workers approaching retirement should also understand the special rules that can apply to people ages 60 through 63.

Canadians should similarly review their available RRSP and TFSA contribution room and consider how registered accounts fit into their overall retirement-income strategy.

In Your 60s: Focus on the Whole Retirement Plan

By your 60s, retirement saving is no longer just about accumulating a large account balance.

The questions become more specific:

• When should you retire?
• When should you begin government benefits?
• How much should you withdraw each year?
• How much tax will you pay on withdrawals?
• How long does your money need to last?
• What happens to your plan if markets fall early in retirement?

At this point, retirement planning becomes much more than a savings exercise. It becomes an income and withdrawal strategy.

What If You Started Saving Late?

Starting late doesn't mean retirement is out of reach. It simply means you have fewer years for contributions and investment growth to do the work for you.

There are several levers you can consider.

Save More

Increasing your savings rate is often the most direct way to compensate for having fewer years available.

Work Longer

Working an additional few years can have a surprisingly large effect on a retirement plan. You're potentially adding more savings while also reducing the number of years your portfolio needs to support you.

Reduce Future Spending

A retirement plan doesn't necessarily require a huge portfolio if your desired retirement income is modest.

Understanding what you actually expect to spend can be more useful than focusing on an arbitrary savings target.

Consider Part-Time Work

Retirement doesn't have to be an all-or-nothing decision. Working part-time can provide additional income while also giving you more time to allow investments to grow.

Take a look at our guide to the best part-time jobs in retirement for ideas.

Don't Forget Social Security, CPP and OAS

Retirement savings are only one piece of the income puzzle. Government benefits can provide an important foundation for retirement income in both the United States and Canada.

United States: Social Security

Social Security retirement benefits can generally be claimed before full retirement age, at full retirement age, or delayed to age 70.

Delaying benefits beyond full retirement age can increase the monthly benefit until age 70. For people born in 1960 or later, full retirement age is 67, and delaying from full retirement age to 70 increases the benefit by up to 24%.

The decision isn't simply about getting the largest monthly cheque. Health, longevity, marital status, other income and the need for cash flow all matter.

Canada: CPP and OAS

Canadians also have important timing decisions involving the Canada Pension Plan and Old Age Security.

CPP can begin as early as age 60, while the standard age for starting OAS is 65. Both programs can be delayed, and delaying CPP or OAS can result in higher monthly benefits.

OAS can be delayed to age 70, increasing the monthly payment by 0.6% for every month it is delayed after age 65, up to a maximum increase of 36%.

These decisions can materially affect how much you need to withdraw from your own savings.

Common Roadblocks to Saving

Saving for retirement isn't always easy. Real life often gets in the way.

1. Student Loans

Student debt can make retirement saving difficult early in your career. If you can't save a large amount immediately, consider starting with a manageable contribution and increasing it as your income grows.

2. Housing Costs

Mortgage payments and rent can consume a significant portion of household income. Housing decisions can therefore have a major impact on retirement readiness.

3. Children and Family Expenses

Supporting children can compete with retirement contributions. The important thing is to recognize that these competing goals exist and deliberately decide how much to allocate to each.

Our article about kids staying home longer explores one of the ways family finances can affect retirement planning.

4. Lifestyle Inflation

As income increases, spending often increases too. A raise doesn't have to become a bigger car payment or a more expensive lifestyle.

Redirecting part of every pay increase toward retirement can be one of the simplest ways to increase long-term savings without dramatically changing your current lifestyle.

5. Inflation

Inflation reduces purchasing power over time. That's why a retirement plan should consider not only how much money you have today, but what your future expenses may look like.

Our Frugal Retirement article provides additional ideas for controlling retirement expenses without eliminating the things that make retirement enjoyable.

Choosing the Right Retirement Savings Vehicles

Where you save can be almost as important as how much you save. The best account depends on your country, income, tax situation, employer benefits and retirement goals.

United States

U.S. workers may have access to employer-sponsored plans such as a 401(k) or 403(b), along with individual retirement accounts such as Traditional and Roth IRAs.

Employer matching contributions can be particularly valuable because they can add money to your retirement savings without requiring you to contribute the entire amount yourself.

Our article on the difference between a 401(k) and 403(b) can help explain the distinction between two common employer retirement plans.

Canada

Canadians have different tools, including RRSPs, TFSAs, employer pension plans and other investment accounts.

An RRSP can provide a tax deduction for eligible contributions, while investment growth is generally tax-deferred until withdrawals are made.

A TFSA does not provide a deduction for contributions, but qualifying withdrawals are generally tax-free and do not increase taxable income.

If you're approaching retirement, understanding how registered accounts transition into retirement-income vehicles is also important. Our RRIF guide is a useful place to start.

How Much Should You Save?

There is no single savings number that works for everyone.

A household with a large defined-benefit pension may need much less investment savings than someone who expects to fund their entire retirement from a portfolio.

Likewise, someone planning to spend $40,000 per year in retirement has a very different target from someone who wants $120,000 of annual income.

That's why generic rules of thumb can be useful starting points but shouldn't replace a personalized retirement projection.

Your target should consider:

• Your desired retirement age
• Your expected retirement spending
• Current savings and investments
• Employer pensions
• CPP and OAS or Social Security
• Taxes
• Inflation
• Investment returns
• Life expectancy
• Housing and debt
• Legacy goals

Our retirement savings magic number article explores why your personal retirement number matters more than a generic benchmark.

The Best Time to Start Saving Was Yesterday

The old saying that the best time to plant a tree was 20 years ago applies surprisingly well to retirement savings.

If you're young, your greatest advantage is time. If you're mid-career, your advantage is still having years to make changes. If you're approaching retirement, your focus should shift toward maximizing what you already have and creating a sustainable income strategy.

In other words, don't spend too much time worrying about when you should have started. Focus on what you can do next.

Retirement Saving Is Only the Beginning

Building a retirement portfolio is important, but the ultimate goal isn't to accumulate the biggest possible account balance. The goal is to turn your savings, pensions and government benefits into the retirement lifestyle you actually want.

That means understanding when to retire, how much to spend, when to claim benefits, how much to withdraw and how taxes may affect your income.

Retirementize can help you bring those pieces together in one retirement plan.

Use the Retirementize retirement calculator to explore different savings rates, retirement dates and income strategies and see how your decisions could affect your future.

Conclusion

So, when is the best time to start saving for retirement? As early as possible.

But if you didn't start early, today is still an excellent time to begin.

Start with what you can afford, increase your savings when your income allows, take advantage of available tax-advantaged accounts and periodically revisit your retirement plan.

The earlier you begin, the more time you give compound growth a chance to work. But even later in life, deliberate decisions about savings, spending, work and government benefits can make a substantial difference.

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