When I started my first real job out of college at the ripe old age of 22, the thought of saving for retirement was laughable. It just wasn’t even on my radar, what with $20k in student loans staring us in the face and only a small balance of savings to call our own. I’d start worrying about retirement when Johnny and I were old and boring. Right? Right??
Wrong. Luckily, it was just a few months after my wayward thinking that Johnny and I started to contribute to our first 401k. And since then, we’ve contributed to a 403b and a Roth IRA and plan to keep on truckin’ until the day we finally hang our figurative work hats up for the last time.
So why should you also start saving for retirement in your 20s? Well, there are a couple of reasons:
- You need a lot of dough to retire. Like, a lot. In this post, Johnny and I guesstimated that we’ll need anywhere from 1.5 to 3 million dollars. We haven’t calculated any hard numbers, but either way, that’s a lot of money.
- The younger you start, the bigger difference compound interest will make. This retirement guide lays out a scenario in which a 25-year-old saves $3,000 a year for 10 years in a retirement account. In other words, they only save until they reach age 35. When they’re 65, their $30,000 investment will be at $472,000. Now, if a 35-year-old starts saving $3,000 a year for 30 years, their $90,000 investment will only be worth $367,000 when they reach 65. Crazy!! But true. Your money is much more fertile and therefore able to make a lot more money babies if you start investing in your 20s!
Still not convinced? Let me guess. You’re thinking one of the following:
A. I’m going to invent the next Snuggie and be a billionaire by the time I hit retirement age, so it doesn’t really matter whether I save for retirement now, suckas!
B. By the time I retire, the whole country will have gone to hell in a hand basket, and the least of my worries will be my 401k. Grab your guns, the zombies are coming!
C. I can barely make ends meet as it is, and I’m drowning in student loans and/or credit card debt. Retirement savings? That’s the thing of dreams!
If you chose A. or B., I can’t help ya. Good riddance! But if you chose C., take a deep breath and listen up. I read something from The Happiness Project that’s since stuck with me (not quoted verbatim): People often overestimate what they can accomplish over a short period of time, but underestimate what they can accomplish over a long period of time. In other words, you can accomplish a lot more than you think if you just take one day at a time. Don’t throw in the towel. Start today, and tackle one financial obligation at a time.
If you have credit card debt, get rid of that first, since it likely poses the highest interest rate. If all you have is student loans, and a 401k match is offered by your employer, start matching if you can! I think sometimes people assume they need to have all of their financial ducks in a row before they can even begin to start saving for retirement. Nope. Here is what you need (according to moi):
- No credit card debt or other high-interest debt.
- At least $1,000 set aside as a temporary emergency fund.
- A working plan in place for paying down your other debt (student loans, mortgage, car loan)
- A positive income to spending ratio so money can be put toward retirement. (If you’re struggling with this one, and you don’t yet have an itemized budget set up, here’s how to get started.)
Even if you have all of those things, it still may be hard to bite the bullet toward putting money in retirement. When an employer offers a 401k match, it’s pretty easy to justify matching it since it’s free money! But currently, for instance, Johnny and I don’t have that as an option. I no longer have a full-time job, and his current employer doesn’t offer a 401k match. So it’s up to us to make sure our retirement contributions keep on keepin’ on. And that’s why we’ve started contributing to a Roth IRA. It’s hard to take money out of your bank account and say, “See ya until I’m wearing adult diapers!” Actually, you should never say that. Let’s hope we’re all long gone before that terrible, terrible day ever happens. Where was I? Oh yes… because it’s hard to take money out of the bank for retirement savings, Johnny and I like to put some of our tax returns and year-end bonuses toward retirement. It’s extra money we weren’t counting on, so it’s not as hard to part with it. Another option is to set aside a monthly amount that automatically transfers to a retirement account. Twelve small chunks of money may be easier to part with than one yearly lump sum.
All that really matters is that you’re saving for retirement. Now. And, trust me, someday your 65-year-old self will thank you very, very much. Have you started saving for retirement? Why or why not?