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Why you should save for retirement now...

October 30th, 2015 at 09:29 am

I have a lot of friends who are putting off saving for retirement. Many put off retirement savings for a house. They are busy trying to squirrel away money for their first home. Then suddenly they get into the home and it's MUCH more expensive than they expected. They weren't used to saving for retirement. Then suddenly they are 30 or 32 and haven't saved a penny for retirement. Or they are saving for retirement but they want to focus on paying off the mortgage in 15 years. Or start saving for college.

Here's what happened for us. We started in our 20s. As soon as DH got a real job it was #1 priority. We determined before we bought a house that retirement savings maximum was a line item before we determined what we could afford. It just was something that we deemed necessary since we at the time only had $4k saved for me. DH didn't have any accounts being a foreigner and honestly until then I only had a Roth IRA but we were busy paying off car loans, student loans, and living as graduate students on income very close to the poverty line. So saving for retirement was a pipe dream for us. Something we knew we had to do and we felt we had to catch up.

Well we started saving and all money went to saving for retirement, building an EF, more student loans for an MBA, and the house just took a backseat. We made our payments and lived.

When we turned around we had saved over $550k for retirement in 10 years. Using a retirement calculator if we don't contribute a penny more and retire at 55, using a 7% return we'd have $1.8M for retirement. This nest egg will last us at a rate of $80k/year until age 82 not including a penny of Social Security. We currently spend including our rent $65k/year. This means our nest egg will last until 89 without social security and assuming we are still paying $2400/month in rent/mortgage. Our expenses are a lot lower if we are done with a house payment by 55 (not unreasonable). Right now we could easily live on $40k without a rent or mortgage and we've got enough cash to buy our current house without a mortgage. So our nest egg $550k would be $2.8M when we die if we lived off of $40k now and never saved another penny or used social security. Assuming we worked until 60 we'd start off with a nest egg of $2.6M and we'd die leaving behind $1.0M for our heirs.

So by saving from 26 to 36 we basically funded our retirement. If we choose not to save another penny I think with something from social security and a paid for home we'd have enough to retire early at 55 with and income more than we live on now. If we waited until 60 it'd be ridiculous.

So don't put saving for retirement on hold. I know how easy it is to justify that you have other savings like a home, car, etc. I think it's something you just have to get used and do it. Every penny we save now I know will be worth less than we had saved it 10 years ago. But doing this calculation, my plan is that we will continue saving the maximum 401k, Roth IRAs until we retire. And the goal is 100% income replacement and being financially independent by age 50. This is a stretch goal i think 55 is realistic.

6 Responses to “Why you should save for retirement now...”

  1. Nika Says:

    Very good numbers that give you a lot of flexibility with your goals now. Congrats!

    Most people start with "I have other goals now, I'll contribute later". Thinking they can't possibly commit to diverting that kind of money. We started out looking at it one year at a time, saying "we just going to try very hard to contribute this year, so we at least have that". And did it every year so far. We told ourselves that when we have a baby, we may need to cut down, so better save what we can now. But than it did work out that we could still continue funding retirement. And once you meet these goals year after year, you want to go on.

    Are there any kids in the picture to put through preschool, private school, college and help with down payment? That does impact retirement age.

  2. MonkeyMama Says:

    "I have a lot of friends who are putting off saving for retirement."

    I just cringe reading that. It starts an endless snowball of always playing "catch-up" for the rest of your life.

    I suppose that's the irony of it all. People presume making retirement a priority is the bigger sacrifice, but it's actually the easier choice for the long run.

  3. creditcardfree Says:

    I cringe at that as well. I know friends and family that do save, I just wonder if they are saving enough. Are they just putting a few % in each month? That isn't enough. We are saving just over 17% of our gross income. Most people would freak over that percentage. We are maximized yet on the TSP (401K) but we are on our Roth IRAs. We never even thought of retiring early. Only in the last 9 years has that even become a possibility since my husband joined the military full time.

    I agree with you LAL, that the early start with retirement makes a huge difference. I hope anyone reading starts saving now, too.

  4. My English Castle Says:

    I'm so grateful for what I squirreled away in my 20s. There were years after my divorce that I didn't make much or contribute much to my 403b, but those early years really helped. I worry about my friends too, particularly those at the university.

  5. FrugalTexan75 Says:

    I put money away for retirement from the time I had my first job out of college. Unfortunately I was never able to put very much in in my 20's, and then there were several years where nothing was put in due to not having W-2 income ... I hate to think though where I'd be if I *hadn't* at least *tried* to put money away from the beginning...

  6. Livingalmostlarge Says:

    Retirement for some reason is always the first thing cut. Even Dave Ramsey cuts retirement savings when focusing on debt repayment. I think it's a mistake.

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