retirement

You’re young and semi-carefree. That’s the life most of us are living right now. Being young and not having too many responsibilities can have you believing life will be this way forever, but the truth is as we age, the responsibilities of life pile up faster than we realize. Before we know it, we’ll be our parent’s ages, wondering where all the time went and what we’re going to do about the times to come.

With the economy on a never-ending rollercoaster, the stability of our golden years is uncertain. Whether you’re a college freshmen or a young professional in their late 20s/early 30s, the time to start planning for retirement is now. Not sure if it is worth it? Think again.

An Early Start, Is The Best Start

Even if retirement is not for another 30 to 40 years, younger workers should start planning early for financial security during their golden years. Preparing a savings plan in your 20s can help provide you with a comfortable retirement in your 60s. Yes I know all too well that expenses such as a student loans, rent, utilities, and food can have your pockets on lean, but this is one expense you can’t afford to live without. By the time many of us are eligible for retirement having the security net of a monthly social security check might not be an option. It’s best to start sacrificing now to help ease the burden later on.

The Low Tax Bracket Advantage

As you scrape together change for lunch I know the struggle feels all too real, but being at this stage in life actually has an advantage. Of the two main retirement plans available, Traditional 401k and Roth, the Roth 401k plans allow you to take taxes out now so you can have more money to withdraw later. Getting taxed now not sounding like a good idea? It should. If you’re in a lower tax bracket right now, investing in a Roth means that the money you contribute will also be taxed at a lower rate, which means more of your money can go into the fund as opposed to taxes. If you chose to invest in a Traditional 401k, which takes out your investment pre-tax and then taxes you when you withdraw for retirement, being in a lower bracket means that when your investment is taken each month, your gross goes down, which means the amount of taxes taken out of your check each pay period will go down as well. Remember, the higher the salary, the higher the tax, which means it will cost you more, to invest more when your salary goes up in the future.

Free Money

If you’re working for “the man” chances are your company offers a Traditional 401k plan. Most companies that off this will match their employee’s contribution up to a certain percent of their salary, a.k.a they are giving you money. If you were to participate in the program and opted to put 4% of your pre-tax check into a 401k plan each pay period, your company would match that amount every time! That means double the money going into your account each month and all you have to do is start saving to get it. Not participating with even as little as 1% would mean leaving free money on the table, and who is crazy enough to do that?
Are you saving for retirement? What retirement plans are you using?

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  • omfg

    i’m sorry, but i think being able to save sufficiently for a comfortable retirement is probably one of the biggest myths around. in fact, i think it’s one of the biggest lies/shams perpetrated on the american worker, esp. the 401k thing – which benefits fidelity, bankers, etc.

    it would be damn near impossible to truly put away $2 million+ for most people.

    the median household income is 50,000. so, if i am single, want a home, a car and maybe even want to go to college and graduate school (the best way to make this kind of money), travel a bit and not live like a nun, i might be able to save a decent amount.

    but, if i have a child or two, a dog, a home, a car and everything please tell me how a person can truly raise ALL of the money they might need for retirement on this income?

    your children will either go to private school or public school. your child will go to college which will cost you money. you children may also need to take music lesson and participate in other things that cost money. that alone is a ton of money.

    then of course there is a your mortgage. and everything associate with owning a home.

    and buying your car.

    and on and on.

    you have to be incredibly disciplined and do damn near nothing for entertainment.

    i have a relative who has no debt, owns her home, has a masters degree, good income, didn’t have to put her children through college (they are not too ambitious) and she still doesn’t think she’ll be able to retire when she reaches that age.

    my goal is simply to go to graduate school and have something i can do into retirement on my own, own a home outright by the time i’m that age and save as much as i can to still go on a vacation every now and then and cover certain out-of-pocket medical expenses.

    it’s too bad workers no longer have pensions or anything to fall back on.

    • Mademoiselle

      I think one frequently overlooked concept in retirement planning is reducing the cost of housing.

      With so many people falling victim to the “your house is an asset” farce and jumping from one mortgage to another every 5 years, people often forget that once you’re retired and bringing home less income, you need your expenses to shrink commensurate with your cash flow. But, with housing usually being the largest expense of the typical person’s budget, if you allow yourself to have an outstanding mortgage (or rent) well into retirement, you leave yourself with very little wiggle room in your cost of living.

      In addition to saving money for retirement, people need to be doing what they can to pay off their mortgages before they retire. Even if your mortgage/rent is $750/month, getting rid of your housing expense cuts your retirement costs by $9,000 per year (and if you live to see 80, that could translate to $135,000 LESS that you need to save for retirement). That’s why it’s also important to try and buy a home by your 30s so you give yourself enough time to pay it off by 65. The same concept applies to constantly trading in your car, and keeping a car note into retirement.

      Part of the goal of retirement planning should be to eliminate as many obligations that have an end date/final payment imbedded in the terms (mortgages, car notes, credit card balances, student loans, small business loans, etc. all have an implied final payment whereas property taxes, utilities, gas for your car, groceries, etc. all have to be paid for as long as you need them to live — no end date). For the “final payment” obligations in your life, planning for retirement should include planning to pay them off by the time you stop working so that your retirement costs only include the unavoidable obligations and leisure. It may take discipline and a little bit of research/bargain-hunting on the front-end, but it’s doable and worth the reduced stress.

    • omfg

      lmao. $750/month rent or mortgage?

      i live in los angeles. this doesn’t really exist, unless you’re living in a not so great neighborhood.

      but anyway, i’m not asking for advice. i made a commentary on the system which is playing people. and people need to wake up.

    • Mademoiselle

      I wasn’t really offering advice. I was commenting on your commentary. The $750 example was just to show how much even a small mortgage could impact the amount people think they have to save to retire.

    • Well, after racking up consumer debt and student loans but sending my kid off to college w/nothing out of pocket (yet *crosses fingers* She’s on her own for grad school, though) I’m in “incredibly disciplined mode”. Let me tell you my mind is much more at rest than it was before I started tightening the reins.

      It took seeing both my boss and a co-worker that’s 10 years from retirement age go into health crisis w/o sufficient savings (retirement or otherwise) to get my mind right. They are both maxing out their savings now that they are able to work again. I’d rather live modestly now and have it pay off for me later, rather than find myself in their position.

      I’m aiming to be debt free and buy a house (in cash) by 40 (for those paying attention and doing the math, yes I had my daughter incredibly young). Having that goal reasonably in sight makes bypassing that pair of shoes I’ll only wear a couple times a lot easier.

      Saving for a comfortable retirement isn’t a sham; the lifestyles being paraded in front of us and driving us to spend, spend, spend are the real shams.

  • Save, save, save. If your company has a match for your 401k or your Roth 401k, do it. Every bit helps. No, you probably won’t be able to amass 2 million dollars but every bit helps with compound interest. Do you want to have to work until you die? Pensions will not be around when we retire, so we have to do something if you want to retire. If you don’t want to retire, go on and spend all your money.

    As long as I’ve been working, I have put a little bit into my Roth and my 401k, and they are growing because I’m not afraid of risk, and I plan to retire.

    When you have the money taken out pre-tax, you don’t even realize it’s missing. If my paycheck is 1000 dollars, I spend 1000 dollars. If my paycheck is 800 dollars, I spend it. Therefore, I put money directly from my paycheck, through my work’s direct deposit form, into my bank account (pay yourself first!), some goes to my 401k, and the rest I keep knowing I have done my part towards saving.

    Prior to payday, if I have 30.10 remaining, I shuffle that to savings, and start all over again with just my paycheck. If I get a raise, I reevaluate what percentage I’m putting towards my 401k or savings and adjust it so my paycheck is right back where it started and I don’t fall into the lifestyle inflation category.

    Slow and steady wins the race. Doing nothing leaves you in the bleachers watching everyone else have fun, go on vacations, etc…

    • omfg

      i actually agree with putting leftover money from checking into savings. i do this every week.

  • justanotheropinion

    Put whatever you can into a retirement acct. if your company has a matching program – max out and take their match. THAT IS FREE MONEY!. I started way too late in life due to, well, life. I max out each year and take my co. match. I selected the riskiest investment vehicles from the get-go (figured I was ‘young enough’ to let it roll and make it up when things were better). We are always tight, but no one is hungry and we get a few extras. I won’t rely on SS, don’t want to hope my kids will take pity and take me in and I don’t want to be on the street when the time comes. I’ve done pretty well according to the statistics.

    Had I not put money into my 401k, we could take vacations every year. My house might be paid off, we’d have toys and a lot of other extras. But I’d rather be able to feed & house myself when I retire, have kids that are able to live their lives instead of having to take care of me. I’m still 20 yrs out from retirement (damn, that’s a long time), but I’ve got a great little nest egg going. As long as I’m getting paid, I’ll keep putting the money in.

    By the way, I read someplace a few years ago that if you start putting in $100 a month into a retirement acct. right out of college, continue to increase that amount as your salary increases over the years, and take advantage of co. matching, you can hit $1m long before you are set to retire. The key is that you have to at least start….

  • My name is Ian Clarke and I live in Cheshire, UK. My Dad always said that I should start a pension right now….that was fifty years ago when I was 23. Like so many others we have struggled to bring up a family and although I always had a reasonable job I have been never able to put anything away for retirement. After retiring at 65 I have had many part time jobs, mainly gardening, but I could always see my days of gardening being numbered. Since buying my first computer back in 2000, I have gained a huge amount of knowledge in starting and marketing a home based online business. I have condensed all of this know how into a blog which is aimed at showing fellow retirees how to boost their retirement income. My message is….its never too late to start something new……and why not consider starting a small, home based online business…..my blog shows you how.

  • Jaslene

    Every year my parents told me to start a 401K but I had no idea about it and was too lazy to start anything boy do I regret that eventually I started doing a 401k and I am amazed at the amount of money I amassed it such a short amount of time. Something I could been doing when I was 21 I started doing at 26 so that is a lot of money I have lost of the years but now there is no looking back.

    • Mademoiselle

      Five years ago we were in the middle of a collapsing capital market, so having your money in a 401K at that point might not have left you any better off than you are now.