Putting off retirement savings until you make more money is a mistake

WASHINGTON - People in their 20s have a list of excuses for putting off saving for retirement: Their paychecks are too small. They don't know how long they'll stay with a company. Why worry now about something that feels a million years away?

But a report from the Employee Benefit Research Institute drives home the point that waiting until you're older and making more money to start saving for retirement could be a bad call.

People who start early can get away with saving a tiny portion of their pay and still have a decent chance at having enough money in retirement (in other words, their money won't run out before they die). But those who put it off need to save dramatically more to catch up.

Take a 25-year-old man making $40,000 who hasn't saved a dime. Putting away just 3 percent of his pay each year, including any employer contribution, until he turns 65 would give him a 50 percent chance of having enough savings in retirement, according to calculations the institute made for The Washington Post. Bump that up to 6.4 percent, and his chances rise to 75 percent.

But if that man waits until he's 40 to start saving for retirement, when he is earning $72,000, he needs to start off contributing 4.1 percent of his pay for that 50/50 chance of having enough money - or take a big step up to 14.5 percent of pay if he wants the 75 percent chance of success. If he puts it off until he's 50 and making $130,000, he'll need to start off saving 14.8 percent for a 50/50 chance and more than 25 percent of his pay for 75 percent chance.

Of course, the more you save, the better off you'll be in retirement. A recent survey found that people who saved 10 percent of their pay and didn't cash out early were on track for a comfortable retirement, according to Empower Institute, a research arm of the retirement services provider, Empower Retirement.

Plus, people who start saving early can leverage the power of compound interest over time: If that 25 year old started off saving 14 percent of his paycheck, his chances of having enough money would go up to 90 percent.

This study looked only at projections for single people, by gender. Because women tend to live longer, they generally needed to save a higher portion of their pay.

The idea that retirement savings should start early isn't a new one. But these numbers show how much more valuable your dollars can be when you're young and give them plenty of time to be invested and grow. Even if you don't feel like you don't have much cash at all, a little can go a long way.

• Marte is a reporter covering personal finance. She was previously a writer for MarketWatch and The Wall Street Journal.