Save More, Younger, or Wait and Save Later? New Research

You should begin saving money for retirement as early in life as possible. However, that is easier said than done and a cruel fact of reality — sometimes the banal enjoyments of youth must be sacrificed to ensure retirement.

The average person aged between 20 to 24 years old is lucky to make $30,000 annually. And the average American barely makes $49,000 annually.

While it is prudent financial advice to begin saving for retirement as early as possible, some things are easier said than done. The harsh realities of high cost of living expenses, inflation, and paying for family expenses can make prioritizing for retirement while young hard to accomplish.

A person in their 20s would need to save 7% of a $50,000 salary annually, or $3,500, for 40 years just to save $140,000.

How much

Additionally, the general rule of thumb is to save at least $1 million for retirement, which is a 1980s financial advice trope. However, a retirement fund is always a unique and customized number that should never be generalized.

If you like generalized retirement goals remember that when considering inflation you will need at least $3 million to retire in a large metropolitan city.

However, a new research study theorizes that adults can wait until their 30s or 40s to begin saving for retirement.

According to a recent study published by the National Bureau of Economic Research, employees may be better off waiting to enroll in work-sponsored retirement, pension, or 401(k) plans.

The paper theorizes that young people will be more energized to save later if they enjoy their youth while young. Also, many work-sponsored retirement plans have low interest rates which don’t appeal to young workers.

The NBER study also assumes that responsible workers will enjoy higher salaries as they age to help them save more later. Additionally, Social Security can act as a buffer and income supplement.

More money?

The NBER studies say that under these circumstances, young workers may better off worrying about the immediate expenses of life than auto-enrolment workplace retirement plans for a retirement that is decades away.

Critics of the NBER paper do not agree.

It’s a fallacy to believe that young workers will earn a higher salary in the future. That is an assumption that can’t be taken for granted in this pandemic-wrecked economy. And the Social Security system could run out of money by 2032.

Jon Anderson, of Cetera Financial Group, a retirement planning facilitation company, disagrees with the findings of the NBER paper.

“Telling people not to save and telling them they’ll be fine is, in a certain sense, a dangerous proposition,” Anderson told CNBC. He believes that young adults should over-save as much money as possible as early as possible to guard against the uncertainties of the future.