People often fret about their retirement savings. Even diligent savers feel they haven’t done enough.
Saving for retirement is serious business for sure. In effect, you have to be able to finance up to a third of your entire lifespan with no income.
Think about that. It’s decades of your life, if you’re lucky. The first person to receive regular monthly benefits from Social Security was Ida May Fuller of Ludlow, Vermont. She retired in 1939 and started collecting a check in 1940 at age 65.
She died in 1975 at 100 years of age. Ms. Fuller did not collect a lot from the program, participating for only three years since its inception in 1937. Yet the retirement system paid her every month from 65 on.
Your retirement savings plan (beyond Social Security) does not rely on the incoming financing from new workers to pay older retirees. Unlike Ida May Fuller, if you don’t set aside the money, it won’t be there to finance the years that follow.
The change you need to make is to decide that today is the day you start to save. It won’t matter if you save 1% of your paycheck or 6% or more. What matters is that you find a place in your budget and make it happen.
From there, the choices become easier. If you experience a windfall — a bonus at work, a tax refund check, whatever — bank it. If you reach the end of a payment, say a car or other medium-term expense, don’t immediately trade in and buy new.
Stash it away
Instead, up your IRA payment. Most brokerages offer a bank-like account where you can stash money to invest at your leisure. Find out where to send the checks and set up a monthly automatic payment.
If you can make this simple choice, then you will soon learn about one of the greatest forces known to man: compounding.
See, money you save today, if properly invested, has the curious effect of becoming more money. Every penny you earn from an investment then becomes capital that also earns money.
Those of you who are old enough probably remember the 1980s shampoo ad where the model tells two friends about the product, then they told two friends, and so on. (You might recognize her from later TV fame.)
In a properly managed retirement account, that’s your money. Each dollar eventually becomes two. Then the $2 becomes $4 and then turns into $8, like magic.
Compounding is powerful stuff, but it really gets a kick when you continue to save, adding new dollars to the growing pile of compounding money in your retirement account. On top of all that, you get tax breaks for doing so, which saves you money today as well.
Saving money for retirement is hard. But the hard part, you’ll find, is starting. Once you commit, it can be addictive in a good way.