Sense & Centsibility Blog
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Three ways to save for retirement

America Saves week continues! Today the focus is a post on saving for retirement from Mary Ellen... 

I’m 60 years old now. I hear what you’re saying, “You don’t look a day over 59!” Well, thank you, but it’s true, I am 60. And it’s also true that I was 22 just a few years ago. Or so it seems. I didn’t believe at 22 that I would be old. Only old people were old – they were born that way.

I was a waitress in my twenties and made my rent in a couple of shifts. With few other financial obligations, I had a lot of fun during those years. I so wish now, though, that I had understood then what I know today about the reality of aging and the miracle of compound interest. I could be looking at a comfortable retirement instead of barely getting by (or worse) with just a little less fun in my 20’s.

Let’s talk more about that miracle of compound interest

Had I started saving $200 a month at age 20 and kept it up until I retired, say at age 67, I could potentially have a cool half million to supplement my social security income, while actually only saving a total of $112,800.

I am now putting 30% of my income into retirement funds, frantically trying to catch up. I never will catch up to that half million, not even remotely close. But, I try not to despair because I tell myself that every month I put aside that money is a few months I can pay utilities and food in retirement. It is some comfort. I have the money taken directly from my paycheck, so I can’t waffle about it. I’ve had to reduce other spending to make it work, but I adjusted and am still satisfied with my life.

But, oh, if only I had started young…

Which is my BIG message to young people I meet in my office or in the grocery store checkout line: Do not delay starting to save for retirement! The miracle of compound interest is dependent on TIME! Even a small amount turns into serious money after 40 years. Fifty dollars a month could easily be close to $75,000 with a conservative 5% rate of return. If your average rate of return is 8%, you’d more than double that amount! Play around with investment calculations to see how much your money can grow. The U.S. Securities and Exchange Commission (SEC) has an easy-to-use calculator.

How to start saving

Employer retirement plan

This is the easiest route to take. Your employer will do all the work, you just need to opt in. If they match your contributions, that is FREE money! The rule of thumb is to save 10% of your income for retirement (if you start young, more if you’re starting later in life, like me.) If your employer matches, say 4%, your minimum contribution amount would be 6%.

IRA’s – Traditional and/or Roth

(Learn the difference here.) You set up your own IRA through any number of sources, could even be your local credit union. There are many mutual fund companies online with low fees. Some even have quite low opening balances. Just be sure to set up an automatic monthly deposit to the IRA. If it isn’t happening automatically, chances of not doing it are greatly increased, and your standard of living in your golden years is greatly reduced.  

Expecting a tax refund?

It's the perfect time to jump start your retirement savings!

Like I said, I was 22 just a short time ago. You've been warned about the prospect of growing old and you've been informed of the miracle of compound interest. Our money will spend itself on whatever, unless we take the step to direct it to long-term savings. Drop what you are doing and get your retirement savings happening!

For more helpful tips, read Facing retirement and debt? You're not alone and What I would tell my 20-year-old self about money.

Author Mary Ellen Kaluza is a Certified Financial Counselor with LSS Financial Counseling and she specializes in budget, credit, and debt counseling.