I recently read an article on the Billfold about Merrill Edge’s new Face Retirement App.The app shows you a picture of your “old self” because “preparing for retirement is easier when it’s staring you in the face.” I’m not thinking about how to save for retirement – but should I be?
Should I start saving for retirement at 23?
To be honest, the idea of saving for retirement is out of reach. While I’m still saving money living at home, I’ve been thinking about moving out, which would be a huge cut into my monthly budget. I’m not the best at saving money for long periods. I tend to be great at being frugal and saving money when I’m saving for something “fun.” I love to travel and that’s where most of my savings go, but maybe I should be more practical. Maybe putting $100 a month towards a retirement fund would be a good place to start?
Reasons to Start Saving Now
The sooner I start saving the more my money will grow. According to Bankrate.com, “If you begin saving for retirement at 25, putting away $2,000 a year for just 40 years, you’ll have around $560,000, assuming earnings grow at 8 percent annually. Now, let’s say you wait until you’re 35 to start saving. You put away the same $2,000 a year, but for three decades instead, and earnings grow at 8 percent a year. When you’re 65 you’ll wind up with around $245,000.” That’s a HUGE difference…over $200,000!
Even if I can only save as little as $25 a month now, this will help me get used to putting money aside. Just the exercise of saving every month will make it easier to start saving more as I get older. Eventually, as my salary increases, I’ll be able to put more and more aside each month. If I wait, it may be harder to get into the habit of saving money and I could end up putting it off for much longer.
Reasons to Wait
The only reason I have for not saving for retirement, is that I’m not making a great deal of money. I don’t want to give up the “fun” of my twenties just so I can retire early. I’m already struggling to save money to move out (eventually) so I’m pretty tight on cash as it is. That being said, I think I could manage at least $25-$50 a month. It’s a start, right?
I started saving when I was 23. My job had a retirement plan that you could start once you had been there for a year. If you contributed a certain percentage, they would contribute a different certain percentage. It was hard seeing the money taken about but extremely rewarding seeing that amount grow. I don’t even notice it going out anymore. And then two years ago I started a Roth IRA to have a tax free growth account now that I’ve been at my job a few more years. The take away point my parents and financial advisors present is the earlier, the better. Even of its just a small amount now, it’ll grow and get you in the habit of thinking about retirement. Who knows what social security will look like when we’re set to retire? I’m counting only on what I save for retirement to fuel it with anything else being a bonus. So START NOW! 🙂
Dacia Daly says
Hi Sandy, thanks for your tip! My twin sister recently started a job with a retirement plan which is one of the reasons I was so interested in this subject. I’m currently working for myself, so I’ve decided to look into a Roth IRA. I think it’s a great idea to rely on yourself instead of social security. Talking to my father (who’s a business owner and accountant) he agreed that starting to put away money now would be the best decision. Good luck with your savings and thanks for the great advice! 🙂
It’s easier when the money goes directly into your retirement plan and you don’t see it as opposed to having to write a check or transfer each month. You will get used to living on the lesser sum of money. Just think of $20 per month as one cup of Starbucks each week.
Any amount that your company matches in the 401k or 403b (even if it’s 25% of your contribution) is a better rate of return than anyplace else and the money is going into the account tax deferred, which means you don’t pay taxes on the money and it’s growth until you take it out.
A MAJOR CAVEAT: when you leave the company, have the retirement money rolled into an IRA account that you can establish with a bank or brokerage firm and have it done as a trustee to trustee transfer. NEVER let them send you a check. Money will be withheld for taxes and there is a 10% penalty for withdrawing the money before age 59 1/2 . The full amount of the money would need to be placed into another qualified retirement account within 60 days to avoid the penalty. SO, if the account had $10,000 and they sent you the money, you would receive maybe $9,000 after taxes were withheld. You would need to put the full $10,000 into your IRA to avoid the penalty which means coming up with the extra $1,000 before the end of the 60 days.
The government also has a savers credit for people below certain income levels so that you can also be saving money on your income taxes as well. The income level varies with your filing status.
Dacia Daly says
Hi Myke, since I work freelancing and not at full-time company job, I don’t have the benefit of these retirement plans. It is great that companies have matching programs. In my opinion, that’s a great incentive for saving. I wonder if there is a way to have money taken directly from my savings account every month and put into an IRA? That’s something to look into. Thanks for all of the great information! 🙂
You can have fun now and don’t have to retire “early.” As social security is right now, if a person delays retirement to age 70, he/she can receive more payback than at 65.
But I have another consideration for you. Right now you don’t want to “give up the fun of [your] twenties. But, Dacia, there will ALWAYS be something more enticing or necessary than saving for retirement, e.g., raising a kid to and including college, or medical concerns, or home/auto repairs or . . . It may seem too far into the future, but unless something drastic happens, you someday WILL reach retirement age. People are living longer so, ideally, your funds will outlast you.
If you don’t start planning ahead now, then when?
Dacia Daly says
Hi Diane! That’s a great point. At every stage of life there will be something that seems more important than saving. I had originally planned to start saving for retirement at age 25, but I agree that it’s better to start now. While I’ll start by saving only $1,000 a year, I can always contribute more as my salary increases. If I keep putting it off, who knows how long I’ll wait!
Jen Y says
Yes start saving now – I started saving at 20, I’m 47 now & I have no regrets at starting so early, I wish I had started earlier. My husband & I started savings for our son when he was born – he’s 21 so he’s been saving most of his life now. He’s also been married about 5 months now & has paid his own way. My daughter-in-law started her retirement at age 19, as soon as she could after she started working. Her parents didn’t plan ahead like we have but she already has a very good start at 21.
You can’t expect someone to pay your way in retirement – you need to start early so you’ll be prepared to enjoy a good standard of living & to pay for your care when you can’t work – I know that’s harsh but it’s reality. I think I was able to face that at such a young age because of the hard things my parents suffered through when I was teenager – that of course affected me as well. It’s why I’ve put savings first all of my life & still had plenty of room & time for fun, whether it was expensive or free you can still have fun but you can’t go back & save more afterwards.
Dacia Daly says
Hi Jen! Looks like I’m behind! That’s pretty amazing that you were already saving at 20. I have to admit that I was not as frugal between the ages of 18-21 as I probably should have been, but I’m working to fix that now. It’s definitely true that you can have fun for free. I tend to spend a LOT less in the summer because I love to take part in outside activities that are free. Instead of going out to lunch or a movie, I’ll have a picnic at our local town beach or go for a hike. It’s a great idea to find ways to balance saving and fun by taking part in expensive activities.
I think that you’re right that it’s possible to have fun and save money. I’m going to start saving money now and planning for my future. It’s impressive that your whole family has this same saving mentality. By teaching your family to save you’ve given them a great skill for their future. Thanks so much for sharing your story and advice with me! 🙂
I started up my 401k when I was 20. And really, I would have started it sooner but the company I worked for from age 16-19 required you to be 21 years old to open up a 401k. The company I started working for when I was 20 had the same policy, but I managed to sneak in 🙂
I think you’re on the right track. Even if you can save $25-50 per month now, that’s better than nothing and you’ll be thankful you did. I’m 28 now, and my 401k balance has already grown to about $65,000. I put a lot more money into it now than I did before I got out of college and started my career (so it grows faster now than it did from age 20-24), but I am sure thankful for that ~$15,000 or so I was able to sock away in my early 20’s.
As far as enjoying your 20’s, of course make sure you to plenty of that, too! There’s just a balance to be had somewhere between enjoying life now and making sure you’ll be able to enjoy life later. I’m sure you’ll have no problem finding that balance 🙂
Dacia Daly says
Wow! I find it very impressive that you’ve already saved $65,000. That’s amazing! I agree with your point that it’s important to find a balance between enjoying life now and setting yourself up to enjoy life later. One of my problems is that my friends aren’t very frugal and it’s easy to spend a lot of money when we go out on the weekends. While it’s easy to get caught up in fun activities, it’s a good idea to think about the future and how you can get the most for you money. Thanks for sharing your story! It’s really inspired me to become more serious about saving for retirement! 🙂