If you are alive and have an income the answer is now (or in some cases twenty-years ago).
I have talked with some young people in their twenties who told me it was too soon for them to think about retirement. Talk to me when I turn forty one said.
That’s a big mistake, very big.
As simple as the concept is, all too many people don’t get the incredible value of compounding interest.
For example, let’s say you start saving $100 a month at age 20 and over time average a 7% annual return. At age 65 you will have $381,572 of which $54,100 is the money you saved and $327,472 is interest.
Now, if you wait until age 40 to start saving, you must save $470 a month to get the same total dollars at age 65.
However, there are two key things to consider. First, at age 40 will you be in a position to save that much more? Chances are you are starting to think about college costs about then. You likely have a hefty mortgage, perhaps even seeking to buy a new home.
Even more important is that you now have only twenty-years until retirement. That means your ability to cope and recover from stock market and economy ups and downs is far less than it was twenty- years earlier when you had a forty-five year horizon.
As you get closer to retirement and hence start to live off your savings, your investments should become a bit more conservative than when you had many years to save. That typically means the rate at which your money grows will be less because you are also now concerned about preservation of your money.
If circumstances require you to stop or cut back saving in your forties or fifties, think how much better off you will be if you had that nest egg started at age twenty still working for you. Using the same assumptions as in the above examples, if you stopped saving at age 45, you would have $81,580 still working for you. Twenty-years later you would have $329,480. Even if you assume only a 6% annual return in your later years before retirement, you would still have $270,046.