Preparing for retirement might be the last thing on your mind. Between focusing on finishing your degree and kick-starting your career, it can be hard to think about your golden years. But it’s important to start as soon as possible so that you can have a financially secure retirement in the future.

Our very own Senior Policy Advisor, Tom Church, built a calculator that demonstrates the importance of saving for retirement as soon as possible. Delaying the start of your retirement savings by just a few years can mean a difference of hundreds of thousands of dollars.

The calculator shows outcomes for two retirement savings plans: one with a fixed-investment return and one with a dynamic return.

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What does that mean?

The fixed-investment return plan is “safer” than the dynamic one. It assumes that you save 10% of your income each year with a constant 5% return on your investments across your whole life.

A dynamic investment plan assumes riskier (and thus higher-return) investments at a younger age with a gradual shift to lower-risk investments when older.

Both plans use the assumption that your pay increases by 3% each year.

Three members of FtF staff used this calculator to paint out different scenarios. The scenarios depict three people who obtained their undergraduate degrees with different majors, and show the outcomes of their hypothetical retirement plans.

Please note that these scenarios are general examples and do not address anyone’s specific financial situations, nor are they financial advice.

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Scenario 1: Business Major

For example, let’s say a Person A recently graduated with a business administration & management degree. Their starting salary is ~$43,000/year, the median starting salary for that degree.

Assuming they start investing at the age of 22 and they follow the retirement-adjusted plan with the fixed investment rate, they would roughly have $1,241,000 at retirement.

If Person A, at 22, instead chooses to follow a riskier investment plan with a dynamic return, their balance at retirement would then be about $1,400,000. That’s roughly $160,000 more than if they followed the plan with a fixed return on investment.

What if Person A started saving at, say, age 25 instead? Delaying to start saving until 25 would leave them with $1,225,000 under a dynamic return plan. A mere difference of three years cuts their retirement savings by $175,000.

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Scenario 2: Political Science Major

According to the Georgetown University Center on Education and the Workforce (CEW), the median first-year salary for political science majors is notably lower than their business major counterparts, at $32,904.

Let’s assume Person B graduates from college the same year as Person A, except with a bachelor’s degree in political science. They start saving for retirement as soon as they can at age 22, putting aside 10% of their salary each year. Assuming their salary grew at the same rate of 3% throughout their career and they followed an investment schedule with a fixed return, they’d retire with $955,399.

But let’s say this political science grad followed the more realistic dynamic investment schedule. Under the dynamic return rate, they’d retire with $1,081,466. That over $126,000 more than they’d get with the fixed-investment return plan.

What if circumstances didn’t allow them to start saving at age 22? If Person B started putting money in their dynamic investment plan at age 35 instead, they’d only have $597,023 at retirement. That’s almost $485,000 less than if they’d started saving at 22.

So what’s the bottom line for Person B, our hypothetical political science major? They are better off if they start saving as early as possible (given their financial situation, of course) and if they choose a more dynamic investment schedule.

It’s also important to note the difference between the median first-year salaries of a business major and a political science major. Earning potential varies significantly by major, and this is another important factor for Person B to consider while pursuing their undergraduate degree.

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Scenario 3: Biology Major

Despite the hype, many of the practical skills which STEM majors used to rely on for job security and high pay are being replaced by advancements in technology. Consequently, salaries for STEM majors have declined. For example, say Person C makes the average biology graduate’s starting salary of only $27,995/year. Using our calculator, this results in a modest $812,861 sum at retirement if they save using a fixed-investment return plan from age 22.

This competitive employment landscape has increased the demand for advanced degrees over the last two decades. In some cases, a focus on higher education is rewarded with advanced degree-holders earning tens of thousands of dollars more than their undergraduate peers. Recognizing this disparity, STEM students like Person C would generally consider a few options for continuing their education:

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1. Obtaining a PhD

Holding a PhD often means higher pay, better benefits, and increased job security. For example, individuals with a PhD in chemistry generally begin their careers at age 27 after nine years of schooling and doctoral work, making a median starting salary of $62,900. Assuming they begin their 10% contributions at age 30, they will have a total of $1,384,927 at retirement.

Still, there is a real risk for students who apply to graduate schools in STEM: the principal investigator (PI) of the grad student’s assigned research project is ultimately responsible for determining their proficiency. While some PIs award PhDs regularly, many students will work on projects as graduate students for several years before being sent home with only a master’s degree. A chemistry master's degree will earn a median starting salary of $52,000.

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2. Becoming a medical doctor

While it is true that doctors make more money than most other professions, they are also much older when they finally begin realizing this enhanced income. Assuming an 18-year-old high school graduate streamlines their path to medical practice, they would still be roughly 29 years old before they finish their undergraduate degree, attend medical school, and complete their training in residency.

Post-residency salaries vary greatly due to specialization, making it difficult to obtain an accurate median starting salary. For a general practitioner, the mean annual wage is $214,820. Using the fixed-investment return rate, they would acquire $4,729,888 by retirement if they started investing at age 30 - immediately after medical school.

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3. Attending law school

Biology majors most commonly apply to medical school, but another professional avenue for STEM majors is law school. STEM students generally have a competitive advantage when it comes to patent law. The average starting salary for a patent attorney is $94,809. Again, post-baccalaureate education delays this earning, with law students generally beginning practice at age 25. Assuming the same savings practices, Person C would have $2,379,482 at retirement if they followed this career path.

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A few concluding thoughts

The calculator and scenarios assume ideal situations; they do not account for life’s anticipated mishaps. The reality is, there is no perfect formula that captures someone’s specific financial situations. Responsibilities like unexpected student loans, medical bills, unemployment, or emergency situations can arise which will constantly shift one’s priorities.

You can try using the retirement calculator tool yourself—just click the link below! Download the spreadsheet (you’ll need Microsoft Excel), run your scenarios, and send your results and feedback to contact@freefacts.org.

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Rather than serving as financial advice, this article is meant to serve as a thought experiment on the benefits of saving for retirement sooner rather than later.