The most important retirement table you will ever see

A 40-year career seems like enough time to save for retirement when you’re new to the workforce. But ask many workers in their 50s and 60s, and they’ll tell you it’s not as long as you might think. Many regret putting off saving for retirement as long as they did, and some are working harder than they expected to make up for it.

It may not be worth saving for retirement if you only have a few dollars to spare at the end of the month, but that’s not true. Here’s why you should start saving as soon as possible, regardless of the size of your contributions.

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Your dollars are worth more than their face value today

You invest your retirement savings, ideally for decades, before withdrawing them to cover your expenses. They will grow during this time if you have made wise investments, with your early contributions having the greatest earning potential.

Consider this: A single $100 pension contribution yielding an average annual return of 8% would be worth $108 after one year. But in the following year, it would increase to $117, and the earnings get bigger and bigger over time, as shown in the table below:

Calculations by author.

Obviously, this will not be an amount you can retire on. But it does illustrate that you don’t need to make large monthly contributions to retirement if you have time on your side. That $100 contribution grows 21 times its original value after being invested for 40 years.

If you delay your pension contributions until you have larger amounts to contribute, you are making your job much harder. Your money has less time to grow, so you’ll have less investment income to rely on in retirement. You’ll need to make up the difference by either setting aside larger portions of your income in the future or working more.

Let’s say you started saving for retirement at age 25 and plan to retire at age 65. Think you’ll need to save $1 million to cover what Social Security won’t do. You can achieve this goal by saving just $311 per month, assuming you earn an average annual return of 8%. But if you waited just 10 years longer to start saving, you should be saving $710 a month — more than twice as much.

How to build the habit of saving for retirement

It is best to make regular monthly contributions to your pension if you can do so. This is simple if you have a 401(k) because you can choose to defer money from each paycheck. IRA savers may be able to set up monthly transfers from a linked bank account.

Ideally, you would have calculated how much you need to save for retirement and be able to save that much each month. But this is not the case for everyone. If you can’t save as much as you’d like, start with what you can afford to put away, even if it’s just $5 or $10 a month. As your income increases, you first increase your pension contributions until you reach your goal.

You’ll need to reassess your retirement savings target every year to make sure you’re still on track. If you’re behind where you’d like to be, you may need to increase your contributions in later years or consider delaying retirement a bit to give yourself some time to catch up.