When to Start Saving for Retirement (Hint: NOW!)

Retiring Tomorrow Starts Today

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:

  1. 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.
  2. 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):

  1. No credit card debt or other high-interest debt.
  2. At least $1,000 set aside as a temporary emergency fund.
  3. A working plan in place for paying down your other debt (student loans, mortgage, car loan)
  4. 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?

Previous Post Next Post

You Might Also Like


  • Reply Dave Lalonde May 30, 2014 at 7:29 am

    I started saving for my 401k long ago. This is a great post, I think it’s really important for young adults to understand just why it’s so important to start saving ASAP. I’ll be sure to forward this to the voices that need it.

    • Reply Joanna May 30, 2014 at 3:22 pm

      Thanks, Dave. It is so important… sometimes I just want to shout it from the rooftops!!

  • Reply Debt Busting Chick May 30, 2014 at 8:12 am

    Great article! I totally agree with you. I started saving for retirement through my teachers pension last year. Once my debt is paid off I’d like to save more alongside this.

    • Reply Joanna May 30, 2014 at 3:23 pm

      Awesome. You’ve gotta start somewhere, so way to go on starting to save!

  • Reply Kelsey May 30, 2014 at 8:31 am

    I graduated college at the beginning of this month, and am about 3 weeks into my first real job. I don’t have any debt (thank goodness), and I have a good bit in savings. My employer doesn’t offer a 401k until after my 90 day probationary period. What do you suggest I do between now and then?

    • Reply Melanie May 30, 2014 at 3:48 pm

      I know you’re not asking me, but you could set up a Roth IRA (if you qualify, there are income limits) and add as much as you can to that in the 90 days (max per year is $5,500 for a single person). Or if you don’t want to do that, you could set aside whatever amount you plan to put into retirement each month in your savings account. Say you want to put $250/month into retirement-start putting $250/month in savings for those 90 days and when it comes time to switch that amount to retirement contributions, you wont have gotten used to that “extra” money. Just my two cents! 🙂

      • Reply Kelsey June 2, 2014 at 7:26 am

        Thank you! Definitely looking into a Roth IRA. 🙂

    • Reply Joanna June 2, 2014 at 12:45 am

      Great tips from Melanie! I wholeheartedly agree!

  • Reply Rob May 30, 2014 at 9:14 am

    Yep Joanna,, you and Johnny know me well enough by now to know that I too started my retirement saving really early in life (at 23). During the early years it was slow going, what with other pressing expenses (food, clothing, mortgage, car, marriage, kids, etc etc) but I kept throwing as much $ into the retirement savings pot as I could afford back then. And so, over the years, with compounding of interest, dividend reinvestment, and regular monthly contributions (benefiting from dollar cost averaging), the retirement pot steadily grew. By my mid 40’s a lot of my other debts were either gone or more manageable and, with steady increases in income over the years, I was then able to regularly max out my yearly retirement contributions, diversifying my investments to the point that the total savings then really took off in growth and so far (touch wood) still continues to this day! So the moral of this tale: as you advise, start as early as you can to save for retirement. It’s all part of the “pay yourself first” philosophy.

    Have a great weekend with Sally, guys.

    • Reply Joanna June 2, 2014 at 12:47 am

      Love hearing your “been there-done that” perspective, Rob. It’s great to hear from someone who’s tried and tested what we’re doing and has seen it work!

  • Reply Megyn May 30, 2014 at 9:25 am

    I think my husband may have started some sort of retirement fund. However, at this point, we are planning on his pension plan. If he works 30 years for the fire dept., it means he gets 99% of his 3 highest years salaries averaged for life. That’s a pretty sweet deal. We know there are no guarantees though, so we definitely need to start looking for another way to save too. It’s just hard when there are so many more immediate things begging for our money on a monthly basis!

    • Reply Joanna June 2, 2014 at 12:49 am

      Very cool, Megyn. Pension plans are few and far between, so that’s awesome! Take it one day at a time, and just save as you can!

  • Reply Kasey @ Debt Perception May 30, 2014 at 10:22 am

    I haven’t started saving for retirement yet. I’ve only ever worked part time and/or freelance and have never had a full time job. My entire income goes towards paying off debt and to saving for taxes. Maybe someday.

    • Reply Joanna June 2, 2014 at 12:51 am

      It sounds like you’re doing your best, which is more than what most people can say. Just keep on keepin’ on, and your hardworking attitude will pay off.

  • Reply megan May 30, 2014 at 12:15 pm

    Having your 401k sit in the background while you have mounds of debt is often tempting to pull the money and pay off your debts. I have thought about it a time or two. Luckily there are hurdles you have to jump that keep most people from pulling the money out. Save save save. It’s the smart thing to do.

    • Reply Joanna June 2, 2014 at 12:52 am

      Yep, it’s hard to save for something that’s 40 years off. But in the end it will totally be worth it!

  • Reply Jess May 30, 2014 at 12:52 pm

    I started last year at 22 and it is the best feeling! I don’t earn a ton of money being a grad student and working in social services, but I sure don’t miss the 3% I have taken out. I feel awesome knowing it will grown over the next 40+ years.

    • Reply Joanna June 2, 2014 at 12:52 am

      Awesome, Jess! You will never regret making it a priority!

  • Reply Anne May 30, 2014 at 2:25 pm

    I’m a born saver and my dad helped me open my Roth IRA when I was 19 with some of the money I made from internships, but I didn’t start maxing it out until after college.
    I started saving in 401(k)s about a month after starting my first full time job, initially putting in enough to get the match and then ramping up to mitigate taxes (stupid california and it’s 9.3% state income tax!). As a result H and I are in a really good place for our ages, and having so much saved already will help us make a transition similar to yours- I hope to cut back to at least part time when we start a family.

    In other news, did you see the Kickstarter for Reading Rainbow/Levar Burton? You probably have, but I couldn’t not tell you. They’re bringing RR to the web and disadvantaged classrooms, and you can get his signature in several of the rewards if you’re interested.

    • Reply Joanna June 2, 2014 at 12:56 am

      That’s awesome, Anne! It sounds like you and your husband have your financial ducks in a row and then some!

      And Levar! We did know about the Reading Rainbow Kickstarter. Amazing!! 🙂

  • Reply Melanie @ My Alternate Life May 31, 2014 at 1:23 am

    I worked for nonprofits in my early twenties and never thought saving for retirement was worth it. I then got a clue and started a Roth IRA at 26. But I was in grad school, then unemployed, so I hardly had anything to contribute, then stopped altogether. Now at 29, I have $1800 in retirement. It’s pathetic, but I’m paying off my student loans, which still have 40k left. But I’ve increased my payments from $50 to $100 per month. I’m so glad I’m getting better before I turn 30!

    • Reply Joanna June 2, 2014 at 12:57 am

      You’re still plenty young, Melanie! Keep on keepin’ on!

  • Reply Victoria @thefrugaltrial May 31, 2014 at 5:36 am

    I really regret not paying into a pension during my 20s. My employer matched contributions, knowing that I sacrificed free money makes me sick! My new employer doesn’t contribute to a pension so, despite my credit card debt, I have started contribuing a very small amount to a stakeholder pension. Once the debt is clear I can ramp up those payments. To anyone in there 20s reading is – Invest in pensions!

    • Reply Joanna June 2, 2014 at 1:00 am

      No point in thinking about the past! I didn’t make contributions for the first two years of having my job. What’s important is that you’re contributing now. Way to go!

  • Reply Michele May 31, 2014 at 10:32 am

    I have been saving money ever since I started making it! I think this belief is easier for some than others. Throughout college the restaurant I worked for had a 401k. I socked money into that since my tips paid the bills, the weekly check at $4/hr was a bonus. When I became a teacher I socked money away for a down payment on a house and began putting money into a retirement through a financial planner despite the pension I will receive. This was right when the recession began so it was scary not knowing what was going to happen to my money! I do low risk investments and love seeing my quarterly statements and my money growing!!! Now only 25 more years before I can enjoy it!! While that cash would be nice right now after taxes here in NYs it wouldn’t be worth it to get it now! Do you have life insurance too?

    • Reply Joanna June 2, 2014 at 1:04 am

      Way to go Michele! That’s awesome. You’ve got a great perspective.

      And Johnny’s getting life insurance all set up, which we’ll be posting about soon!

  • Reply Wade June 1, 2014 at 7:45 pm

    I started thinking about retirement at 35. It took me another 5-6 years of trial and error to set a good course. The Bogleheads.org forum has some of the best information out there.

    1. Keep costs low (I am there now, wasn’t always)
    2. Start saving early
    3. Stay the course
    4. Set the correct asset allocation for your age
    5. rebalance 2-4 times per year

    Read the whole list at Bogleheads.org

    I wish I would have started thinking retirement at 22. I would have made many different financial decisions.

    • Reply Joanna June 2, 2014 at 1:07 am

      It sounds like you’re figuring things out now, Wade, which is what’s important. You’ve got some great steps for staying on track! Thanks for sharing.

  • Reply Little House June 2, 2014 at 9:54 am

    I started saving for retirement somewhat late, but I do have pension plan in place that I’ve been a part of since my late 20’s, I hope to really kick my additional retirement plan in the butt next year to ensure that I have enough by the time I retire along with the pension. I’d be totally screwed if it wasn’t for the pension!

    • Reply Joanna June 4, 2014 at 8:40 am

      It sounds like you’ve got a good plan in place. Pension plans are a pretty amazing perk!

  • Reply Rachel June 3, 2014 at 3:04 am

    In Australia it’s legislated that our employers contribute 9.25% (at the moment it will increase to 9.5% soon, and then gradually up to 12% over the next 5 years) of our annual income to a Superannuation Fund (we get to choose which one). This 9.25 is on top of our gross salary, and while it’s include in your ‘remuneration package’ on your employment paperwork, for most people we don’t think of it as income because we never see it.
    Employer contributions to our Superannuation are taxed as they go into the fund (and I don’t even know the rate), but this means that when we hit retirement age and cash out our Super fund we don’t pay tax again.
    Of course these Super funds are at the mercy of the markets, and the returns fluctuate significantly depending on the investment package that you choose, but they mostly average above the cash rate, and I know mine is growing quite healthily. Most super policies also offer the option of paying a monthly fee (mine is really low) to have the security of income protection. So if I wasn’t able to work for a period of time because of illness or injury my Super fund will pay me a set amount a month (I get to nominate) once I’ve been out of work for more than 6 weeks.
    There are special rules around making personal contributions to super (done before you pay income tax, so it reduces your in-hand taxable income), and some funds allow you to cash out early in certain circumstances.
    A few years back the the company I was working for at the time set up a special deal with one of the big funds, locking us in to a super low management fee, and insurance premium structure guaranteed for the life of your policy, this means that even through I now no longer work for that firm I still get to keep the benefits of being on that policy.
    According to my calculations, which I did a few pay rises ago (and after I bought my house) provided my fund still keeps paying the minimum guaranteed return (like 3% or something) and it usually averages around 8%, I will be set for my retirement. Particuarly as I’m planning to have paid off my house about 15 years before I hit retirement age. 🙂

    • Reply Joanna June 4, 2014 at 8:46 am

      Wow, so interesting to hear how it’s done in another country! Kind of nice that everyone saves for retirement by default. What a great feeling knowing you’re on the path to be ready for retirement when the time comes!

  • Reply Kelly August 8, 2014 at 10:39 am

    Hi! I’m new to your site, but loving it! I’m sorry if you’ve posted this somewhere else; I AM trying to read through each of your posts 🙂 My husband and I both have Roth IRAs. We’re big fans. We have had auto-transfers set-up with our checking account to make monthly contributions to our Roths for several months, which will come close to maxing them out. Here’s my question: When you sit down to work on a budget (which I’m in the process of), and you’re calculating the percent of income going to savings, does the amount you’re putting in retirement count as part of that savings percent? Or, should you make retirement contributions in addition to, say, 20% of income going to savings? Thanks for your help!

    • Reply Johnny August 11, 2014 at 12:22 am

      Hey, Kelly! Thanks for perusing our site and commenting.

      Great question! In your situation, I think the latter option of setting percentages for both retirement AND savings makes the most sense. Retirement is technically savings, but since you won’t see it for a long, long time, it’s better to separate it from your short-term savings.

      That being said, Joanna and I determine a retirement amount for the year (currently the Roth max of $11k, which your can read about here: http://www.ourfreakingbudget.com/why-we-max-out-our-roth-ira/) and contribute to it in one lump-sum at the end/beginning of the year. Since that money is out of sight at the outset of the year, we just consider everything else “savings.” But I suspect as we automate more of our savings goals (like retirement), we’ll move into model where we’re creating savings goals for both short- and long-term (retirement) separately.

      Hope that helps!

    Leave a Reply