Over the last couple of weeks I’ve been writing quite a bit about the Roth 401(k), the Roth IRA as well as Traditional IRA and 401(k) accounts. We’ve been doing a lot of research for our own family as far as what we want to do with our retirement accounts, and how much we want to save. We’ve finally decided on a plan of action, but over the course of these past couple of weeks I’ve come to realize something.

You can debate all you want about whether to do pretax or post tax retirement accounts, whether to max out a 401(k) first or to contribute to a Roth IRA, or what kind of funds to put your money in. When it really comes down to it however, the best retirement plan is one you actually begin and start contributing to… as soon as possible.

Too Many Aren’t Contributing Enough To Retirement

We live in a credit crazy culture, where people are told to live well and high on the hog while they are young and can enjoy it. Unfortunately far too many people think this is a good idea, and do just that.

The problem is that the life expectancy of people in this country is higher than ever before, and with the longer lifespans more money is needed to allow people to continue living the same lifestyle for longer in retirement.

Most won’t have enough to live the same lifestyle, however. According to one study, a good number of people are going to have to downsize in retirement due to their lack of retirement funds:

The Center for Retirement Research (CRR) estimates that 36 percent of high-income households – those with a median income of $117,000 – won’t be able to live as well in retirement as they do today. Among middle-income households, 40 percent are at risk of having to downsize, while 53 percent of low-income households are likely to fall short. That hasn’t always been the case. “We’re at the tail end of the golden era of retirement,” said CRR Director Alicia H. Munnell. In a report released Tuesday, CRR notes that only 20 percent of those who were between ages 51 and 61 in 1992 were at risk of falling short of money in retirement. Today, 32 percent are. Why the increase? Munnell points to the shift from traditional pension plans to 401(k)s. Plus, she notes, people are living longer, and Medicare and taxes will take a bigger slice out of Social Security checks.

So while it isn’t completely surprising that low income households don’t have enough saved for retirement or may fall short of being able to maintain their lifestyle, the fact that 36% of high income households are in danger of having to downsize is a bit more surprising. 40% of middle income households are in danger as well.

Start Contributing Early And Often

All of this says to me that we need to start saving earlier, and start saving more – especially if we want to maintain the same lifestyle as we have now. There are things most people don’t consider the costs of when thinking about retirement including the possibility of long term care, health issues requiring medical care, the long term solvency of social security and more.

So how young should you start contributing? As young as you can! It’s a simple answer, but I really do think that as soon as you’re able to get out of debt and save up an emergency fund you should be stashing as much cash as you can, while still living your life and being able to give generously.

Here’s an example. If you start saving $500/month at age 25, by the time you retire at 65 and assuming an 8% return – you’ll have around $1,554,339 in your retirement account. If you waited til you were 35, you would have $679,699. That’s quite a difference that those 10 years make. The wonders of compound interest!

Don’t Worry Too Much About What Type Of Retirement Account, Just Start

My advice is to not get too carried away with worrying about what type of retirement account you should use, and what type of tax treatment is the best for your situation. Think about it certainly, and get some sound advice on which is best for you. But to me the most important thing is just to get started contributing, and contributing as much as you can to your retirement. Time is not on your side!

Do you think you’ll have enough saved for retirement? Did you start saving early enough or are you now trying to catch up by making larger contributions? Tell us about your thoughts on this in the comments!