Don't Expect This to Save Your Retirement

When money's tight, it never seems like the right time to start saving for retirement. But if you're counting on things getting better later in life, think again. New evidence suggests that the cost of waiting is far greater than you might believe.

Later in this article, I'll show you what you can gain by getting started today with a smart retirement saving strategy. First, though, let's take a look at a troubling trend that threatens the assumptions that many people make about their finances.

Whether you're fresh out of school or getting started in a new career, starting off at the bottom of the corporate ladder can be painful financially. Especially for those fighting student loans or other debt, entry-level salaries may not go nearly as far as you need them to in order to feel comfortable financially. The temptation, therefore, is to wait until you're better established in your chosen profession, hopefully earn some much-deserved raises, and thenstart setting money aside for a rainy day.

But as analysis from market prognosticator and frequent Rule Your Retirement contributor Doug Short reveals, assuming that things will get better can be dangerous to your financial health. According to figures taken from Census data, Short determined that the median incomes of those aged 45 to 54 have dropped the most from their peak of any age cohort. With peak incomes of almost $77,000 back in 1999 (after adjusting for inflation), typical 45- to 54-year-olds now earn less than $64,000.

As troubling as that is, you can draw an even more problematic conclusion from Short's analysis. Twelve years ago, median earnings for 35- to 44-year-olds hit a peak of more than $70,000. Those workers may well have assumed that their earnings would go up due to moving into a higher-earning age group. Yet the figures show that their typical earnings fell almost 10% -- despite having more experience and seniority.

By contrast, if you begin saving for retirement earlier, you get a couple of extra things going for you. First, you build a useful habit of setting aside some of the money from your paycheck each payday, imposing a level of discipline that is important irrespective of the amount of money you save. It establishes a foundation that you can add to over time as your resources grow.

Moreover, with an extra 10 to 20 years of time to grow, you can save just a fraction of what you'd need to save if you wait until age 45 to invest. As a ridiculous example, consider the returns you could have earned from buying certain stocks 20 years ago. Southwestern Energy (NYS: SWN) has grown from a tiny player with just $144 million in revenue in 1992 into an important company with nearly $3 billion in sales last year, and investors have watched their investment rise 30-fold. Tech giants IBM (NYS: IBM) and Dell (NAS: DELL) have taken very different paths to get where they are today, but both have rewarded shareholders nicely over the past two decades.

Even a tough 10-year period can be lucrative if you pick the right investments. From the depths of the tech bust, (NAS: PCLN) has flown high, rising 60-fold and continuing to hold up well despite troubled economic times around the world as its innovative methods of saving on travel costs entice customers.

Obviously, you can replace all those rosy scenarios with bad ones. (NYS: C) , for instance, would've been a horrible investment, costing you 85% of your money over the past 10 years as the financial crisis exposed the missteps the bank took in making loans too aggressively.

The real message, though, is that it's never too early to start saving for retirement. Given how much harder your money can work for you if you give it an extra 10 or 20 years, delaying will only cost you. Now more than ever, counting on the future to bail you out just isn't worth the risk.

If you want to retire rich, an early start is just part of the best game plan. The Motley Fool's latest special report will give you all the details you need to get a smart investing plan going, plus it reveals three smart stocks for a rich retirement. But don't waste another minute -- click here and read it today.

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Fool contributor Dan Caplinger started saving early. You can follow him on Twitter @DanCaplinger. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of, IBM, and Citigroup. Motley Fool newsletter services have recommended buying shares of and creating a synthetic long position in IBM. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy will save you whenever it can.

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