Why save for retirement?
Social Security shouldn't be your only retirement plan
Social Security was never meant to be anyone's sole source of retirement income.
In fact, a 30-year-old making $50,000 per year today—and who might realistically expect to make substantially more by the time he or she retires—can expect less than $22,000 per year from Social Security at age 67 (in today's dollars).
In the past, pensions often offered an additional source of income for retirees. But pension plans are becoming rare in today's world, and it's more important than ever to take advantage of the opportunity to save for your future.
Keep in mind:
On average, Social Security payments make up only about 33% of Americans' retirement income.
Source: Social Security Administration.
When earnings on invested money generate their own earnings. For example, if you invested $5,000 and earned 6% a year, in the first year you'd earn $300 ($5,000 x 0.06), in the second year you'd earn $318 ($5,300 x 0.06), in the third year you'd earn $337.08 ($5,618 x 0.06), and so on. Over longer periods of time, compounding becomes very powerful. In this example, you'd earn over $1,600 in the 30th year.
Spending now could mean you'll pay for it later
Perhaps you'd rather spend your money on other things that are more fun than saving for retirement.
But because compounding can enhance the value of your savings, the "pain" of each dollar you save now can be greatly outweighed by the flexibility you gain later.
Of course, we're not suggesting you'd be better off squeezing the last drop of enjoyment from your life.
But we think that knowing you'll be all set to meet your basic needs later—with enough left over to let you comfortably do the things you look forward to in retirement—is worth going without a few treats now and then.
Do the math:
Choosing to spend less on certain expenses now could make a huge impact in the long run! For example, you could spend $3,600 a year on payments for a new car during the next 5 years … or you could watch that money grow to $80,000 over the next 40 years!*
Control what you can
In the end, the future of Social Security isn't the only thing that's out of your hands. Tax rates will almost certainly change between now and your retirement date, and inflation will continue to increase prices over time. Other government programs, like Medicare, might also change.
But there's one thing that only you can completely control: how much you save. Start now and you might be surprised at how little you notice the sacrifice.
What do others do?
Our report found that 42% of employees under age 25 were enrolled in their workplace retirement plans.
Source: Vanguard, How America Saves 2018. This study examined employer retirement plans (and their participants) managed by Vanguard.
Learn more about retirement accounts at Vanguard
We offer several types of accounts you can use to save for retirement. Figure out which one is right for you.
Where does retirement fit into your priorities?
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*Assumes an annual return of 4% after inflation. Figures are in today's dollars.
All investing is subject to risk, including the possible loss of the money you invest.
Vanguard's advice services are provided by Vanguard Advisers, Inc. ("VAI"), a registered investment advisor, or by Vanguard National Trust Company ("VNTC"), a federally chartered, limited-purpose trust company.
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