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The sooner you begin to save for retirement the better off you'll be: Personal Capital VP

Personal Capital Vice President of Advisory Services Amin Dabit joined Yahoo Finance Live to break down why you should begin to save for retirement as early and as aggressively as possible.

Video Transcript

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SEANA SMITH: Time for our retirement segment brought to you by Fidelity Investments. And for that, we want to bring you Amin Dabit, Personal Capital vice president of Advisory Services. Amin, great to have you on the program here. I know you recently pulled data on the average 401(k) balances by age. So let's just start with baby boomers and those that are pretty close to retirement. Are people well positioned for a comfortable retirement right now?

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AMIN DABIT: Great to be here, and ultimately, the answer is no. The average 401(k) balance for individuals over 55 is about $171,000. And in the 65 plus age group is $192,000 across the country.

ADAM SHAPIRO: So as different people watch this, the question they're asking is, if I do, do my 401(k)-- because I forget the statistics. At one point, it was only 50% of the workers in the country had access to one. It's gone up. And I think 75% now who have eligibility actually fund it.

But the return you get on that investment, I think I saw in one of the reports, a recent blog from-- I wasn't sure if it was Kiplinger's or your organization-- that you should be looking at an 8% return over time. And I just got to tell you, even actuaries who do pensions, they overdo it when they say 7%. Most actuaries will tell you 5%-- if you're lucky, 6%. What's the number?

AMIN DABIT: Well, so it is on our blog the average 401(k) balance, and we are using an 8% return rate. That is based on average market return over the long term, right? If you're looking at a short period of time, there's a lot of different numbers there. But ultimately long term, that is a good number to use as an estimate. And obviously, it'll always depend on your allocation and how you're invested.

But that is what we're using. And ultimately, the message from that is really to show you how compounding has a big effect on your retirement and your retirement savings. The sooner that you save for your retirement and the more aggressively that you save for your retirement, the better off you're going to be. The compounding effect there are drastic. We go into those numbers if you start saving at the age of 22 versus waiting till later years and what that means to you.

SEANA SMITH: I mean, in that report, you were also talking about the fact that only 32% of Americans invest in a 401(k) plan, yet 59% have access to one. So there's an issue that 40% of Americans don't have access to one. But focusing on those who do, why do you think that is? Why do you think that number is so low? And how much money could people potentially be leaving on the table?

AMIN DABIT: So that's a great, great question. And ultimately, it's inertia, right? People aren't thinking about their future selves for their retirement. And it's always something that you can kind of pass off and say, OK, I'm going to address this later. I'm going to look to save at some later point when I earn more money or whatever the reason is. But the main message that everybody should here is, you should start now, no matter what age you're in. It's very critical for your retirement.

And so, to answer your second question on what that means for individuals, if you're in your 20s and you start saving into your retirement account about $8,000 a year, that can lead up to $6.5 million by the time you're 65 if you're using the 8% growth rate. So it's a lot of money.

ADAM SHAPIRO: Real quick question for you. There's an effort in Congress perhaps to make savings for retirement mandatory. You would have to opt out. Good idea or bad idea?

AMIN DABIT: So I think it is a good idea to opt people in and allow them to opt out. Because we do see that a lot of individuals end up, again, not opting in because it's too difficult to do, or they basically are trying to navigate different systems, where if you're just opting in, it would allow them to start saving and part of their compensation package. But ultimately, the ability and the freedom to be able to do what you want is the key.

SEANA SMITH: Amin Dabit, great to have you on the program. Thanks so much for taking the time to join--