Why You Need to Save Now

Credit: Stuart Miles

Whether they choose to or not, I would wager that most people know they need to be saving money for retirement. After all, unless you’re planning to work until the day you die, or you’re willing to make do solely on your Social Security income (and any pension income), how could retirement be possible? What concerns me is that most people seem to wait until their 40s and 50s to really start saving for retirement. Don’t get me wrong, a dollar saved for retirement is a good thing at any time, but let’s be clear: A dollar saved in your 50s is not the same as a dollar saved in your 30s!

Let’s say you want to have $1 million saved by retirement at age 60. At an 8% annual investment return, you would need to have put in a whopping $5,500 per month every month from age 50 on in order to hit that goal because you’d only have 10 years to save and potentially grow your money. If you had started at age 40 and had a 20-year time horizon, you’d only need to stash away around $1,700 per month. If you started at age 30 and had 30 years before retirement, you’d need to save around $700 per month, and if you were incredibly ambitious and started at age 20 with 40 years to go, you would theoretically only need around $300 per month in order to hit your retirement goal. Now there will be years where the market roars (like last year), years where the market dives, and years where the market stays about flat, but do you see my point? I don’t know about you, but I’d rather save $700 per month in my 30s than $5,500 per month in my 50s!

In light of these figures, I issue you a challenge: Consider increasing your 401(k) or retirement plan contributions by a few percentage points. If you were lucky and got a raise at the end of last year, you can probably do this without feeling the extra withholding from your pay check. Even if you didn’t get a raise at the end of last year (and should have!), I’d still encourage you to bump up your contribution rate a few dollars or percentage points. Please don’t do this if you are truly fighting to make ends meet, but if you can, I really believe that making a slight, mostly painless adjustment could lead to a much better retirement picture.

I want you to know that I practice what I preach. I just finished filling out the required form to raise my contribution rate to my 401(k) a few percentage points. It is my hope and expectation that this will allow me to retire sooner as I will have more dollars saved with a longer time horizon to grow.

Do you accept my challenge?

-Tom