Are you Saving Enough for Retirement, Maybe?

Are you saving enough for retirement, maybe, well it really depends on which headline and article you read these days and how confident you are in the material. In a span of five minutes I read two articles. One told me baby boomers are working longer because they have not done a good job of saving and a second that said workers are saving more including older workers who are the most prepared for retirement. So, which is it?

I guess if these articles get someone, anyone thinking about retirement savings that’s a good thing. I’m not sure they will give you any clear advice or direction. When I talk retirement I do it from a savings standpoint. It’s tough to sell early retirement to three teenagers who haven’t even locked down their first part-time jobs yet. These are some of the things we discuss and maybe they can help you determine if you are saving enough or on the right path for retirement.

Dump Debt

In order to save the most it’s no secret you need to dump debt as soon as possible. Debt just complicates things like savings and adds stress to your everyday life. During our debt repayment we temporally stopped saving towards retirement to allow us to take the extra cash and apply it to our debt snowball. This may not work for everyone, but for us it allowed us to focus on the number one goal of becoming debt free. Once debt free we had more cash to save for retirement, college funds and our emergency fund.

Start Early

The sooner you can start the better, even if it’s a small amount at first. A small amount is still better than no amount. Automating this savings or paying yourself first allows you to condition yourself to live without the money from the beginning. Have you ever gotten a raise and began thinking of ways to spend the increase? Why not take a percentage of it or even all of it and save it. Doing this before you receive it and begin to spend it prevents you from missing it because you in theory you never had it.

retirement

Compound Interest

Ever heard of this magical concept? Compound interest is the interest added to the principal of a deposit and accumulated interest of previous periods of a deposit. Well as you save compound interest allows that savings to grow even larger.  Check out the rule of 72 for a very easy explanation. So the earlier you can start and the more you can save the bigger your savings has the potential to grow.

Free Money

Take advantage of free money when you land that first job pay attention to the benefits information like 401K, pension, etc. Most companies offer a match up to a certain percentage and if you don’t opt in you could be losing out on 1-4% of your salary. When you consider starting early and compound interest that could be a lot of money being left on the table if you don’t take action.

Get Help

Don’t be afraid to ask for help to assist you with your savings or retirement decisions. At the very least do you own research and homework and make an educated decision on where to save or invest your money. Sure there is no guarantee when it comes to investing, but this isn’t the Powerball and we don’t just pick our favorite number or kid’s birthdays and hope we get lucky. I recently had to make a decision on some of my new retirement benefits and I reached out to an expert for her opinion. Shannon helped me walked through the pros and cons to reach a decision.

I’m trying to impress these five areas upon my three teenage children when it comes to saving for their futures. I really hope they follow my advice and avoid ending up being a confusing statistic in a future finance article someday.

What other things should be considered when saving for retirement? How do you determine how much you save for retirement?

18 thoughts on “Are you Saving Enough for Retirement, Maybe?”

  1. When I was younger, I didn’t have a formula to determine how much to save. How could you, really? There are so many variables: future income, future expenses, future investment returns, future inflation (a big one, I think). 20-30 years is a long time to project these amounts.

    Instead, we simply made saving/investing a priority. We eliminated all debt, including the mortgage, and kept our spending in control. Not pinching pennies……just aware of what we were spending. As our income rose, we kept our spending growth reasonable. This meant that the percentage of our income that was saved grew over time.

    We kept our investment costs low, our taxes minimized and our asset allocation appropriate for our risk tolerance (so we weren’t tempted to sell during the 2000 and 2008 market crashes). We kept rebalancing and investing the entire time.

    At the end of the day, the market returns and inflation rate really impact when you can retire…..and I can’t control either. What I can control is making sure I am constantly saving!

    Thanks for your post!

    John

  2. Right now I’m saving as much as I can for retirement because I’m playing catch up. I don’t know how I would try and make the point to teenagers or someone in their early 20’s. It’s so hard to think about retirement and saving now, because when you get your first big kid job, you want to spend. I think it’s rare to find the person that age who is super stoked about retirement. But I think it’s worth a try because too many people are trying to play catch up later on in life. Why struggle when you don’t have to?

    1. I think that’s when you show them the math of saving now versus waiting.It really paints a clear picture. What they do from there is up to them. I understand about catching up. Glad to be off my 8 month hiatus. 🙂

  3. I think there are some millennials out there who struggle with the dual message of “dump debt” and “start investing early.” Which should they do first?!? I think dumping debt is great, but I also think it’s smart to consider investing early, especially if you get perks like a 401k match. I also think that at some point the interest rate on debt is low enough where you can justify throwing money into tax-sheltered retirement accounts. Some bloggers and personal finance “gurus” disagree with this, but I think you need to have balance if you want to take full advantage of things.

    1. A good point DC. I wish there was a blanket statement that could cover everyone. Really depends on the situation. I’d agree if you are facing a mountain of debt with a long repayment period putting off investing and missing a match is not a great idea, but if for a short period of time to stay focused it could be a good choice. Just really depends and might involved some math. 🙂

  4. The whole idea of saving and saving a huge lump sum, then to start using it to retire never excited me. I admit I started late in the game for preparing for “retirement” but I just personally feel that I will be better off building passive income and retire off of that income stream that will never end.

    It is not easy at all though obviously to do something like this especially for younger people so with that being said. I definitely think that you should starting saving for retirement in your early years.

    But like you said, how to get that instilled in a young person’s mind is the big problem. I know when I was young, there was no way I was going to use my money on saving for retirement. We need a solution for all the youngsters out there!

    1. Passive income isn’t a bad idea either. I like the diversified income streams. I think the biggest hurdle is just to get young people thinking differently, not the one track mind of only working for someone else.

  5. Saving for retirement is super important but I don’t think it’s on the radar of young people. They are usually trying to pay off debt and student loans instead. Paying off debt is great, but you need to save for retirement too so you can take advantage of compounding interest.

    1. As I mentioned I believe it really depends on the situation and the amounts.If you can be focused for a short period of time to knock out the debt and they saving more that might be the way to go. All about calculating the numbers.

  6. Unfortunately, for us it’s more a matter of doing the best we can to save whatever we can. We don’t have 401(k)s, my husband is on disability (before that, he was working and I was on disability), we have a lot of health care costs, yada yada. So we’re very behind in saving.

    I wanted to make this the year of an opened and fully-funded SEP, but my husband’s disability review ended with his benefits being denied. Now we’re in an appeal that’ll probably last 2 or more years, and he wants to save all the money we get, lest we have to pay it back.

    In other words, we’re *definitely* not saving enough for retirement. But we’re doing the best we can, and we’ll just have to prioritize it once we get that disability nonsense squared away. If we can learn to live without that income, we can dump it directly into a SEP in years to come.

    At least we still have around 3 decades of compound interest. That’ll help. Hopefully.

  7. Being 18 in college it is hard to save money, im usually stuck spending my money on school things but i try to invest as much as i can now so i have a little back up when i enter the real world when i graduate. First thing im gonna do is pay off any school loans I have, and after that frugal living!

  8. I’d like to comment on the “get help” part. I think this can be dangerous. I have met many people in my life who were willing to “help” me with my financial questions. A large majority of these people were actually trying to help themselves with my money.
    Get help, but be wise about it… your friends and colleagues don’t know sh#t (cf: http://howtoretireearly.net/why-you-shouldnt-take-investment-advice-from-your-colleagues/ ), and financial advisers are here to take your money. I found that free resources such as personal finance blogs and forums were the best and most honest source of information so far

    1. What I meant was expert or professional help. 🙂 You can ask for help, but don’t have to follow that advice you receive. I sometimes like to get a different POV just to make sure I didn’t overlook something.

  9. While I completely understand why you put retirement savings on-hold while paying off your debt, we’ve decided to continue contributing to my husband’s 401K, while we pay down our debt. It’s primarily an emotional decision for me. (The fear of missing out on the compounding and losing momentum outweighs my desire to accelerate our debt repayment as much as possible.) It’s not necessarily logical, but it’s what I feel most comfortable with.

    1. Not a bad way to go. For us we already had a sizable 401K, and we not contributing all that much so it didn’t factor too much. I didn’t like losing the free match for a short period of time, though.

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