Perhaps the market turmoil has you rattled, or you made a New Year's resolution to clean up your finances. Or new projections about rising health-care costs have you jittery about making your savings last.
Whatever your reason, January is an excellent time to take stock of your savings behavior and make sure you are socking away enough for retirement.
While it sounds like a good plan, the fact is, many of us are not doing anything.
Only about 58 percent of workers have access to a workplace retirement plan, and only 49 percent of workers are participating in one, according to research by the Pew Charitable Trusts.
Even when people do save, they are not putting a lot away. To that point, 57 percent of workers in the Employee Benefit Research Institute's 2015 Retirement Confidence Survey who provided this type of information said they had less than $25,000 saved for retirement. And while many respondents estimated what share of their earnings they should be saving, more than 1 in 4 had no idea.
The good news is that if you start early, you do not need to save a lot of your income to make a big difference in your retirement security.
"Individuals should aim to save at least 10 to 15 percent of their gross salary," said Shelly-Ann Eweka, a financial planner with TIAA–CREF. "If you start in your twenties, that's perfect."
If you start later, though, you need to save a larger percentage, she said.
Of course, for some 20-somethings, saving 10 percent to 15 percent of their income may be daunting if they are also contending with student loans and amassing a rainy day fund. So Eweka recommended at least saving enough to obtain the maximum employer match.
"Don't turn down the free money," she said.
Despite the financial pressures younger workers face, they do have a key advantage when it comes to retirement savings in the form of compounding.
If you make a one-time contribution to your retirement account of $100 in your 20s and your employer matches it with $50, assuming your investments generate a 6 percent annual return, your savings would grow to $269 after 10 years. It would be worth $481 after 20 years and $1,543 in 40 years, Eweka explained.
Alternatively, if you make a $100 contribution monthly starting in your 20s, your employer matches each one with $50, and your investments return 6 percent annually, your savings would be worth $24,758 in 10 years, according to Eweka. After 20 years they would reach $68,828, and in 40 years their value would be $289,097.
The power of compounding is one reason Schwab provides a series of recommended savings targets for people starting at different ages.
For people in their 20s, Schwab recommends saving 10 percent to 15 percent of income, but it suggests a 15 percent to 25 percent target for those starting to save in their 30s. The recommendation increases to 25 to 35 percent for people starting to save in their early 40s, and those starting in their late 40s or later should save 35 percent.
Not only do older savers have less time to recover from any market downturns, they also have less of a chance to benefit from compounding. Assuming 6 percent annual returns, a person saving $1,200 at the beginning of each year from age 40 to 65 will have $69,787 in 25 years, but someone saving the same amount annually from age 18 to 65 will amass $306,667, according to Schwab calculations.
These recommended savings targets may be intimidating, but starting to save now offers an unlikely advantage. The market's January swoon is creating an entry point well below what was possible in December.
If you have the stomach for a volatile market, this could be the moment you harness the power of compounding.