More Americans Are Planning for Retirement. Are You Among Them?

by Miranda Marquit · 10 comments

Compound interest

According to The Principal Financial Well-Being Index, retirement planning is on the rise in America.

The survey points out that only 28% of workers aren’t planning for retirement, which is a drop from 32% in the previous quarter. This news indicates that more American workers are making efforts to plan for retirement.

Are you one of them?

The Sooner You Start, The Better Off You’ll Be

With investing and retirement planning, the sooner you start, the better off you’ll be. There are two main reasons that you should consider beginning your retirement planning as soon as possible

1. Compound interest

One of the biggest reasons is compound interest. As your account balance grows, you earn interest on your interest. With investments, like equities, this principle also holds true. The more shares you have, the higher your balance — and you can buy more shares with the money you earn, using not only your capital, but your earnings, to make more money.

2. More time to recover from dips

When you start earlier, you have more time to recover from market dips. This can be a good way to improve your overall portfolio performance. Plus, the longer you’re in the stock market, the smoother your trend line looks. In other words, the longer you have, the less volatility you experience over time.

Starting your retirement planning early (and getting an idea of how much you need to set aside each month) can help you build up your nest egg more effectively. The sooner you start, the longer your money can work for you.

Indeed, starting out by putting a smaller amount into your retirement account when you’re in your 20s can be more effective than trying to play catch-up with a large amount when you’re in your 50s.

You can start small right now and begin building your retirement portfolio. Then, as your income increases, you can boost your contributions.

How Can You Start Retirement Planning?

The best place to start retirement planning is online. There are a number of retirement calculators that can help you figure out how much you’ll need in retirement (base it on your current expenses and go from there), as well as help you estimate how much to set aside each month to reach your goal. If you’re still uncertain, there are plenty of reputable financial planners who can help you map out your future.

If you want to enjoy a successful retirement, it’s important that you make it a priority now. Check into what tax-advantaged accounts you qualify for, as well as the limits with contributions. You can open a 401(K) at your work and an IRA on your own. When possible, make it a point to max out your tax-advantaged accounts so that your money grows more efficiently.

Have you started retirement planning?

Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence.

They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.

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{ read the comments below or add one }

  • Scott says:

    1. Also try to remember that you should not attempt to beat the market with 401k plans (or any accounts for that matter). Focus on high quality and the lowest expense ratio funds that are offered in your plan. Over time that extra .5% – 1% compounded yearly will add up. Look for Index funds as they are generally cheaper in cost.

    2. Every time you get a raise in salary, extra commission, etc try to put most of that away as you never got it. This is very hard to do, but both my wife and I have been doing this for a long time now and because of this we are looking at retirement in our 50’s as apposed to our 60’s. As you get a raises over time keeping your standard of living at 50%-75% of your pay will make your retirement a lot less stressful

  • Jenny @ Frugal Guru Guide says:

    We started retirement planning in our 20s! It was a very good decision.

  • Robert says:

    I can attest to the time value of money. My wife started working at an optometrist’s office when she was 19. The optometrist offered profit-sharing and employee-purchase plans for all of the women in the office. She contributed 10% of her pay for 10 years. She ‘retired’ when we got married at age 29 and has only worked part-time as a substitute teacher. We have contributed very little to her retirement account since then. Today, 24 years later, her retirement account is almost $250,000. I waited to start my retirement account when we married and each year since I contribute the max to IRA’s and even more each year to my 401(k) (maxing out at $16,000 in 2010!), but my account is still less than $200,000. So, she saved 10% for 10 years when she was young and I have been saving well over 10% for 24 years, yet her account is still 20% larger than mine. I don’t believe I will ever pass her. We are not investment pros and we did not get involved in any get-rich-quick schemes. Anyone can do this, it just requires a little sacrifice each payday and an investment with a good mutual fund company. The time value of money is the key to having a decent standard of living in the golden years.

  • Martin says:

    Great write up. I agree with all your tips, but I would add one more. If you are young (start really early) I believe you can even use leverage or margin to boost your account in early years and deleverage later on. When you are young, you do not have enough money, so you want to leverage it as much as possible. Let’s look at the following example, if you are young and have only 10k saved, you want to use margin to invest 20k if not more, because you will have 30 or more years to deal with any dip. As you get older, you will have saved e.g. 800k but you will only have 5 years for example to deal with dips in your 800k account. So the goal should be to reverse this as much as possible. and have 30 years in 800k account instead of only 5 years.

  • Nikita Brodskiy says:

    Like with any other types of savings – retirement savings need to be automatic and regular: set and forget approach. And I like article mentions the compound interest: a simple calculation shows that if you deposit the same annual amount in weekly installments you earn 10% higher interest than if you do it monthly.
    It speaks well for automatic, often and small contributions to the retirement account: it’s easier and more lucrative at the same time.

  • Bucksprout says:

    It’s a relief that more Americans are planning for retirement. Even if you do start a little late there’s still hope! Compound interest and recovering from dips in the market does benefit people who start early. I sense that Americans workers who start late are discouraged because time is not on the their side but there are options out there.

  • @debtblag says:

    I’m doing better than I was before, but not as good as I can be. I’d add one more reason to why you should get started earlier rather than sooner:

    If a year passes and you haven’t maxed out your Roth, you can never go back to that. Also, because you’re not making so much money, you’re getting taxed less, so there’s even more of a benefit to stacking your Roth at that part of life.

  • Dave says:

    I have also started on my retirement plans and also acting on them. Initially I thought of getting an property for investement so that I can live on the rental for my retirement. These are what people have been doing. And probably it seems to be the right path for me as well.

    Probably as ages catches up, I will tend to think more. Actually I may not be able to live off that property rental investment fully until the entire loan is paid up. It requires time.

    Imagine if there is no tenant during my retirement period, does it mean that I am stuck with no cash flow.

    I have been thinking hard and somehow I have straightened out most of my thoughts.

    Dave @ SmartPassiveCashFlow

  • Christian L. says:

    Yup, as a young professional I’ve opened two retirement savings accounts. It offers a sense of accomplishment. And like Alex said, I’m willing to take on more risk with my investments. When I first started my 401(k), it was a bit nerve-racking. It felt like I warped into the adult world.

    -Christian L. @ Smart Military Money

  • Alex C says:

    When starting young, you can also handle a lot more risk, which could bring a lot higher results. If you are young and loose some money, it is not hard for you to recover it so young people can afford to loose mney, not that they want to loose money though.

    But I am glad to hear more people are saving for retirment because I do not think we can rely on Social Security much longer.

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