If I hadn’t saved money in my 20s and 30s, I’d be stuck with a pathetic retirement account. As soon as I began earning money out of college, I started saving. I saved up about $10,000 by the time I was 23. Most of the money in my IRA came from contributions I made in my 20s and 30s. According to a recent article by Credit.com, the 20s are the best time to save due to compounding interest. Even putting compounding interest aside, I just don’t have as much disposable income in my 40s. If I started saving for retirement now, I’d be in serious trouble.
Saving and then stopping
According to Credit.com, a person who saves in their 20s and then stops has much more money when they are older compared to a person who saves steadily from age 30 to 65. In my 20s and 30s, I could have used various excuses for why I couldn’t afford to save for retirement. Instead, I focused on the fact that I could put in the hard work sooner and then skate through life later.
Keeping up with the numbers
Even though I’m happy with my nest egg, I haven’t exactly been able to take it easy yet. According to Credit.com, money that earns 10 percent each year will double about every seven years. The $10,000 I saved and invested at age 23, should have turned into $20,000 by age 30, $40,000 by age 37 and $80,000 by age 44. The reality is, my retirement accounts did grow at exactly this pace, but I had to actually contribute money throughout the years. In other words, my $10,000 didn’t magically turn into $80,000 be age 44. However, I did accumulate $80,000 by gradually building on my $10,000 base. Perhaps other generations in history have been able to rely on a 10 percent return. I can only hope for those kind of returns as I get older.
Shifting to other priorities
In my 20s and 30s, I saved for retirement as well as for a down payment on a home. My expenses were significantly lower because I chose inexpensive rentals. I didn’t realize my housing and other expenses would rise so significantly in my 40s. I also didn’t expect that my income was actually go down instead of up during those main bread-winning years that people talk about.
In my 30s, I had the option of increasing the percentage of money automatically deducted from my paycheck for my 401(k) by one percent each year. I decided instead to just be extremely ambitious by contribution 10 to 20 percent of my income. In my 40s, I cut back to a mere 3 to 6 percent to make up for pressing financial issues such as medical, college tuition, car loans and insurance as well as mortgage costs. My son started saving for retirement at age 18. Even though he doesn’t make a lot, he can actually afford to save more money for retirement than I can. If he gets a 10 percent annual return on his money, he will be set for life even if he quits saving at 30.
More from this contributor:
My Half Million Retirement Miscalculation
Investing in a Rigged Market
After Losing a Pension, I Got Serious about Saving