As a retirement planning expert, I am often asked about the ideal age to begin investing for retirement. Many people are surprised to learn that starting just five years later can have a significant impact on their retirement savings. In this article, we will explore the question of how much more you need to invest per month to reach $1 million at retirement if you start investing at age 45 instead of 40.

## The Power of Compound Interest

Before we dive into the numbers, it's important to understand the power of compound interest. This is the concept of earning interest on your interest, which can significantly increase your savings over time.The earlier you start investing, the more time your money has to grow through compound interest. Let's look at an example. Say you start investing $500 per month at age 40 and earn an average annual return of 7%. By age 65, you will have accumulated approximately $1 million. However, if you wait until age 45 to start investing the same amount, you will only have around $700,000 by age 65. This is because your money has had less time to grow through compound interest.

Even though you are investing the same amount per month, starting five years later results in a difference of $300,000 in your retirement savings.

## The Numbers

Now let's get into the specifics of how much more you need to invest per month to reach $1 million at retirement if you start at age 45 instead of 40. For this example, we will assume an average annual return of 7% and a retirement age of 65. If you start investing at age 40 and want to reach $1 million by age 65, you will need to invest approximately $1,500 per month. However, if you wait until age 45 to start investing, you will need to invest around $2,500 per month to reach the same goal. That's an extra $1,000 per month that you need to invest just because you started five years later. This is a significant difference and can be a challenge for many people to make up in their budget.## Other Factors to Consider

While the numbers above give a general idea of how much more you need to invest per month, there are other factors that can impact your retirement savings.These include your risk tolerance, investment strategy, and any additional sources of income in retirement. Your risk tolerance refers to how comfortable you are with taking on risk in your investments. Generally, the higher the risk, the higher the potential return. However, this also means there is a higher chance of losing money. As you get closer to retirement age, it's important to adjust your investment strategy to be more conservative and protect your savings. Additionally, if you have other sources of income in retirement such as a pension or Social Security benefits, you may not need to save as much as someone who relies solely on their retirement savings.

It's important to consider all of these factors when determining how much more you need to invest per month.

## Maximizing Your Savings

While starting at age 45 may require significantly more monthly investments, there are ways to maximize your savings and potentially catch up on any lost time. One option is to take advantage of catch-up contributions. Once you reach age 50, you are eligible to make additional contributions to your retirement accounts. For 2021, the catch-up contribution limit for 401(k) plans is $6,500 and for IRAs is $1,000. This can help you make up for any lost time and boost your retirement savings. Another option is to increase your income through a side hustle or part-time job.This extra income can be put directly towards your retirement savings and help you reach your goal of $1 million.