Retirement Advice I Didn’t Want To Ignore
I attended a small, liberal arts women’s college in western Massachusetts for my undergraduate education. One of the things that they did upon graduation was held a seminar (and the seminar could have been just for student loan holders, or it could have been completely optional to attend - the details are fuzzy in my head) with a financial planner, and she gave a presentation and some advice to the graduates. One thing she said stuck in my head, and I don’t know if pure math backs it up, but it is about the power of compound interest.
Save $2000 a year in a retirement account every year in your 20s, and even if you stop saving right then, you’ll be ahead of those who start saving $2000 a year every year from 30 to retirement by the time you are 65.
At the time, it seemed like magic. in fact, it still does kind of seem like magic, but compound interest is quite magical. I was already 22 at the time, so I was already behind on this plan, but I thought to myself - I need to do this. Or at least, I need to try. And I did try - but my biggest money mistake, or maybe biggest money regret, is that I didn’t continue to follow through on my decision.
I started graduate school that fall, and I was living on a teaching stipend with no savings, so it took me a little while to save up that first contribution. But by the next spring, I had saved up enough money to open an IRA and deposit $2000. At the time, the limit was $2000 a year, which may be why the financial planner picked that number. I did this early enough in the year that I could have done a contribution for the previous year as well as the current year, but I didn’t have enough money to do that and I didn’t think ahead that I could save up for the current year, and I’d never get that previous year back. So, at the age of 24, I made my first $2000 retirement contribution, with a financial planner I chose because she sent me a mailing. That’s all the criteria I used to choose a financial planner. No other reason. In hindsight (and kind of at the time) I actually knew a little more than she did about IRA contributions, so she wasn’t really the best choice. But, I digress.
I kept saving, and the following year made another $2000 contribution. I was also contributing $25 a month to a separate investment account that I started with $500 I had also saved up. By the year 2000, I had about $1900 in the investment account and was about to make my next IRA contribution. I really did have the best of intentions, but without a real understanding of what I was doing and why other than saving was important, the risk of me changing course because of a change in the market was always looming.
Because then, in 2000, the dot com bubble burst and my financial planner was an idiot and encouraged my fears about making further IRA contributions, and I basically transferred my investment account (which was about $1100 then) into my IRA for the current year, and never made another contribution to it.
My biggest financial regret is that I didn’t continue to save for retirement earlier. I’m now fast approaching 34, and as an individual, I haven’t really done much else to save for my retirement. My spouse and I as a couple have made some plans, and we’ve been using his 401K to save some, but I wish I had not only started earlier, I had continued what I started once I did. My goal for the coming year is that by the time I turn 35 (my 34th birthday is this weekend) I have a realistic plan for what I want to accomplish as far as retirement savings, and have a plan to execute it once the student loan debt is taken care of. That will most likely be a combination of my spouse’s 401K and some sort of IRA for me (since I am self employed, I need to look into the self-employment options for IRAs more carefully) but I need a plan.
Nothing like starting 15 years late. But the only thing worse than that is never starting at all.
This post was written in part as a response to a “Biggest Money Mistake” contest at Millionaire Money Habits. If you’d like to enter Ryan’s Biggest Money Mistake contest, click on over to his site and read his post!
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March 26th, 2008 at 6:57 pm
I started retirement saving/investing at age 22 during grad school and never stopped (except for a pause for a bad patch of unemployment/ underemployment). I’ve done other stupid things, but waiting to start retirement investing wasn’t one of them.
I didn’t really have the wiggle room for a long time to do full IRA contributions–those financial planners forget that these are our salad days in the 20s, and money doesn’t fall from the sky. A person is busy working hard and building a career and the salary growth isn’t there yet. However, of some windfalls that came into my life, I made contributions with windfall money and that was a great thing. The only piece of that windfall that survived!
The key is also NOT TO TOUCH IT!!! So many people think, ah, it’s not much money, I’ll just cash it out while I’m changing jobs…whether they “need” it or not…but given the FV of that money, they just blew massive dough. I’ve been broke and desperate but it just never entered my mind to ever crack and scramble my nest egg. I’ll camp out in a homeless shelter first!!!
March 26th, 2008 at 7:39 pm
I have been reading your blog for the last few months and I really like. After reading the above post, I have to ask did you go to Smith or MoHo? I graduated from Smith last spring and have been recommending your blog to my friends with the exact words “and writer could totally be a Smithie…”
March 26th, 2008 at 9:09 pm
@ Marj - I am indeed a Smithie
It takes one to know one. 
March 26th, 2008 at 9:35 pm
This is why I’m starting to save a bit for retirement now even with the debt repayment and my being so young. Some people have criticized me for it, but I’ll never be able to make up the compounding if I start later.
March 26th, 2008 at 10:30 pm
I’m impressed that you started saving for retirement–even if only briefly–when you were young. If I hadn’t had the 401(k), I wonder if I would’ve saved anything at all. (And through most of my 20s, I only put enough in the 401(k) to get the company match. Somewhere in my late 20s, I started adding a higher percentage.)
March 27th, 2008 at 7:57 am
The retirement savings in known as superannuation in Australia, and it is compulsory. Your employee must pay 9% of your salary into a retirement savings. For me, this is a god send as when I started working at 22, I know nothing about finance, and saving for my retirement was not at the fore front of my thoughts.
Great post!
March 27th, 2008 at 9:14 am
Compount Interest is amazing. i wonder whether if I had started saving as soon as I had an income whether I woudl now have enough money tied up in investments that I coudl be living of the passive income. That is my aim for my retirement - I have no pension so as soon as I pay off the mortgage I am going to invest as much money as I can until I have enough of an income for me and my husband to comfortably retire. The only problem with this plan…..I will probably be in my 90’s by then!
March 27th, 2008 at 10:12 am
It’s things like this that make me freak out that I’m almost 20.
$2,000 is a bit of a lofty goal for me, though, so I’m going for $800 this summer into my first IRA and another $800 each subsequent summer until I graduate with my bachelor’s. Then I’ll have to see if I’m making more or not, depending on the job I get, whether or not I make it into med school right away, how many hours I work, etc. It’s not much, but I’m pretty sure it’s money I’ll never regret saving. (I’m even scheming to put some of my birthday money into an IRA. Hopefully it’ll be open by then, but I think it’s one of the better presents I could give to myself.)
March 28th, 2008 at 1:48 pm
Well, approaching 40 and realizing this kind of thing is even worse… and yet, it’s good to know, since it gives you some insurance for your future. These kinds of investments lead to a better financial future no matter when you start, and there are lots of options out there. The question is, how many 20-year-olds are actually squared away enough to make this happen? Alas, probably not many.
Jerry
March 28th, 2008 at 6:51 pm
@ marj and paidtwice: me too!! I love finding Smithies in random places …. the president of my condo association is one!