Is It Too Late To Start Saving For Retirement?

Haley Hitchman, AIF®, CPFA® |

Financial advisors to retirement plans and individual investors, often get asked by those approaching their later years and thinking about retirement, if they haven’t started saving, “Is it too late to start saving now?” It is easy to respond with a simple “No, it’s never too late”, however, how much is needed often depends on many factors. What type of lifestyle do they envision during their retirement years? If someone is planning to live on social security alone, will that income meet their basic requirements and what is the future of this program? Will they have some sort of emergency fund in case there is a need? If they are retiring prior to qualifying for Medicare, how will they pay for health insurance and when an individual does qualify what is the need for a secondary policy?

Even if an individual is in their early 60’s, it is not too late to start putting something away. For example, if someone is 60 years old, plans to work until they are 67 and saves $7,000 per year for seven years, they would likely be able to achieve a nest egg of over $56,000 with a 5% annual growth rate. While this may not seem like much, it could help during unforeseen emergencies that could occur during retirement or fund any gap that social security doesn’t cover. If there is an employer match or contribution, this will further narrow the gap of funding retirement. A good place to start is to sit down and create a budget. Ideally, paying off any liabilities prior to retirement is prudent. Creating a budget will at the very least provide a point of reference to begin looking at what your needs will be in retirement.

One of the unknown factors is where is social security going. According to the 2022 Social Security Trustee’s report, the program is expected to have to reduce benefits by 2034 if no action is taken. It is unlikely, however, that there will not be some type of reform or restructuring of the program and there are currently a few ideas floating around Washington. Historically, the government has been hesitant to take an entitlement program, such as social security, completely away from citizens. It is more likely they will reform the program to meet the needs of the people. Some of the scenarios that have been suggested are to lower payments to retirees, increase or eliminate the wage maximum, and increase the age at which normal retirement age occurs. It is likely that it won’t just be one of these scenarios, but a combination.

While the simple answer is it is never too late to start saving for retirement, it can be overwhelming for some people. Starting late is better than having no nest egg or emergency fund at all. As always, consulting with a professional financial advisor is beneficial to review your entire financial picture and develop a plan that is designed to your specific goals and needs.