When Should You Start Saving for Retirement?

Too late to invest

Welcome back to another post in my how to invest in stocks series. The issue up for discussion today is when to start saving for retirement. Right up front I want to say that the issue of saving for retirement looks different for everyone as we all have our own unique situations and that is ok. If your plan looks different than others, that is fine as someone else’s investing plan will likely not be a good fit for you.

That said, today’s post springs from countless conversations I’ve had with retail investors that were often struggling to make headway with their retirement planning. There were various reasons for this, but often times their challenges led back to a delay in saving for retirement. Added to that, there can be various issues related to investing for retirement – such as how to start out if you’re in your 20’s, investing while you have debt or if you waited until you’re older to invest. Those are all topics I plan on covering in upcoming posts. If you want to catch up on previous posts in this new investing series, click on the links below:

 

Start Saving for Retirement as soon as you Can

When should you start saving for retirement – now!  :-) Boiled down, that is ultimately the message and one that many need to take to heart. Unfortunately, life is often hectic and hard, which makes it easy to fall into the mindset of putting off retirement savings for what can easily add up to years at a time. To be more realistic, saving for retirement should happen as soon as you’re able to make it happen. For many that are fortunate enough to get a job once they graduate from college it can be as early as then. If your employer offers you a 401k plan, with a corresponding 401k match it that is probably the best opportunity to start saving for retirement and why shouldn’t it be – it’s free money after all. I know there is an argument that if finances are tight that it’s good to bypass putting money into a 401k account. I would disagree with that on many levels, but ultimately falling back to not wanting to give up on the offer of free money for my retirement savings. Unfortunately not all of us are offered a 401k plan or a match with our jobs, which can make saving for retirement, in the beginning, a little more difficult. If you’re in that situation, then generally the best option is to open a retirement account with any of the major online brokerages that are out there and start investing in some index funds or solid dividend paying stocks. That said, please do not allow your lack of funds hold you back from saving for retirement. Even if you start out with something as small as $50 per month, start with that. Start putting that money in an IRA and allow time to do its thing and you’ll not only begin to develop a discipline of investing in the stock market, but you’ll also be actively involved in it. As someone who spoke with people on a regular basis who used this basis as a reasoning, please do not let that be you.

Retirement Planning is Just That…Planning

It can be difficult for many to start saving for retirement as it seems so far away. If you’re just out of college and investing that could mean as much as four or five decades – that is a lot of time. Whether you plan on pursuing the traditional retirement model, or something more entrepreneurial in nature, you’re best served by having an investment plan for your retirement savings. That does not simply mean throwing your money into X number of the funds offered in your 401k plan, but taking active management of it and finding what works best for you. It means checking in on your investments on some sort of regular basis and making adjustments when necessary – essentially rebalancing your portfolio as the situation warrants it.

There is no set interval for this; just do whatever works best for you as long as you’re doing it on an annual basis in the least. It is also important to keep in mind that your plan and needs will change as your life changes and your risk tolerance changes. For example, along with saving money for your retirement, you need to consider devising an estate plan as well as a term life insurance policy that will pay out a death benefit to cover your family’s living expenses. Again, instead of just buying any policy and throwing money at monthly premiums, households must review and compare different types of life insurance policies to find the right one. All of these points go back to the main point that saving for retirement is not really a “set it and forget it” activity, but something that requires a certain level of planning and regular management.

What do you Want to Pass on?

As you’re just starting out investing in the stock market, with an eye towards retirement, this can be one of the most difficult things to keep in mind. I have always encouraged investors to look at what they’re wanting to pass on as they’re retirement planning. Speaking personally, I want us to be able to pass money on to our children. I want us to be able to help start a legacy for them and their children. Thus, we have to invest accordingly. Of course, this impacts other things beyond investing, such as frugal lifestyle choices and the like, but investing in the stock market plays a major role in that. Beyond wanting to be able to provide for family members or friends, you can also think of any charities/organizations you want to be able to give to with your retirement planning. Doing so opens up a number of different possibilities and taken with passing wealth on to family members can really make saving for retirement more tangible for many. If you’re just beginning to think about retirement planning, considering what type of legacy you want to pass on can be a great way to formulate how you might want to be saving for retirement.

Saving for Retirement is a Marathon, Not a Sprint

If you’re struggling with when to start investing for retirement, please remember that time can be your greatest ally, but it can also be your worst enemy. Ultimately, so much of retirement planning comes down to time. While your retirement age may seem to be in the far off distance, you’ll do yourself no favors by putting off saving for your retirement years. I think of it in this way, my wife is wanting to someday compete in a marathon. While I think she’s just a bit crazy to do that to herself, she can’t very well go out and run 26 miles at the drop of a hat. She needs to plan and prepare for weeks and months leading up to it so she can prepare her body to go through that stress. Saving for retirement is very much like that as we don’t, generally, just wake up one day and have a fully funded retirement portfolio. It takes years of hard work and management to create a healthy retirement portfolio and bring it to the point that it’ll provide for those retirement years. With that in mind, please enter into your retirement planning with that mindset and you’ll be well served in the long run.

When did you start saving for retirement? Is there anything you wish that you would’ve done differently?

 

Photo courtesy of: Tax Credits

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About the author:

I'm the founder of Frugal Rules, a Dad, husband and veteran of the financial services industry. I'm passionate about helping people learn from my mistakes so that they can enjoy the freedom that comes from living frugally. You can connect via Twitter / Facebook.

60 comments on “When Should You Start Saving for Retirement?

  1. Starting to save for retirement should started on DAY ONE of your first adult job. When I graduated from college and started my career, I had to fill out the tax paperwork, the direct deposit form, and oh yes the form that indicated how much I wanted to contribute to my 401K. It should just be automatic!
    Travis @debtchronicles recently posted..Four Years of Growth and ChangeMy Profile

    • I agree Travis. The problem is that there is so much lack of knowledge out there that many allow that to hold them back. Employers do not make it easy either with horrible 401k plans.

  2. I definitely agree that saving money early is the best way to build a large nest egg for retirement. I started contributing to my 401k and maxing out my Roth IRA as soon as I graduated from college.

    However, over time things have changed a bit and now I’m more worried about putting money into creating a sustainable business than I am looking to save money to retire. I can “retire” a lot sooner (aka be self employed and be my own boss) if I direct money towards my business.
    Kevin @ Reward Boost recently posted..American Express Blue Cash Everyday – Grocery Rewards CardMy Profile

    • That’s awesome you were able to start out so well and so early.

      Being a business owner myself, I can understand that shift in thinking. Here’s to hoping it works out for both of us. :)

    • That’s awesome Daisy! It’s not so much the amount you’re starting with, but that you’re doing it in the first place. Starting early helps develop that discipline.

  3. Great advice here. The absolute key take away has to be to start as soon as possible. Even if you don’t yet have an investment plan, don’t know how much money you’ll need, don’t know about kids, etc., just get started putting money away. You should definitely figure those things out, but until you do having money socked away will only help.
    Matt Becker recently posted..DIY Car Maintenance: How to Change a Car BatteryMy Profile

    • Thanks Matt! I agree, having the plan helps, but don’t let that hold you back. Try and find some solid index funds and get started with what you can.

  4. Such an important question! Start saving RIGHT NOW! I kept telling myself I’d start saving for retirement 1) When I make more money 2) When I can afford it 3) some other random reason.

    But the truth is, I just procrastinated for about 5 years. I finanlly did start but I wish I did sooner!
    Monica recently posted..July Goals & August $25 GiveawayMy Profile

  5. I started with my first real job. I only wish I’d set the thing to max out from the beginning. Going from a pauper salary, I would not have missed it. Starting early just gives you more options about when you want to retire and what you want retirement to be. I’ve already started our daughter with a Roth. I want her to earn things herself, but if I can get her started with a bit of a nest egg early one, I hope it will be easier for her. On the flip side, I guess she might cash out the money and join a polka band, but I have to hope we’re doing the right thing.
    Kim@Eyesonthedollar recently posted..One Year of Blogging and $100 GiveawayMy Profile

    • I agree Kim, starting early gives you more options. That’s awesome you started your daughter with a Roth…though I’d make her promise not to cash out and join a polka band. ;)

    • That’s great you started so early and did not allow the small amount hold you back. That all helps and develops that discipline you have now. :)

  6. I think it’s important to realize that it’s a marathon, not a sprint like you mentioned above. So many people don’t start saving because they don’t think they have enough money to start. This is a myth because even $20 a month will add up and who can’t afford $20 a month. Just eat out one less time a month and you have that covered.
    Jake @ Common Cents Wealth recently posted..What to do After You’re Debt FreeMy Profile

    • That is a tough balance to walk Grayson and many do not even put money in their 401k. That puts you ahead of the game as far as I am concerned.

  7. I started saving for retirement as soon as I got a full time job out of college. I wish I started earlier, but I never had any money. Hopefully, I can help our kid start very early.
    I’m not sure if I agree with the marathon thing. I like saving up as much as you can up front and slow down a bit later. That’s a sprint right?
    midlifefinance recently posted..Buy And Hold – Is It Smart?My Profile

    • That’s awesome!

      I think you’re point about saving more early on and then slowing down is a good one and likely a more effective way to go about it. That said, unless you start out making a nice salary, starting out with more can be difficult for many. Even with the faster at the start mentality, it’s still a marathon – just at a different pace.

  8. In France you need to have worked 40 years to retire. Used to be 37.5. Your retirement contributions are mandatory and taken off your paycheck. So if you work from age 18 you qualify for a pension at 58. If you don’t work enough you can get a partial pension but still have to wait the 40 years, no early retirement… I started at 18 with my first official paycheck but I have only 7 years or so between odd jobs, good thing jobs in the rest of the EU counted too.
    pauline recently posted..Make more money during the holidaysMy Profile

    • That sounds like quite the way to go Pauline! Does it count for your first job – say if you start working at 14 or 15? That would be pretty nice. :)

  9. It is so refreshing to hear this younger generation being so much smarter than my generation was re: investing for retirement. Of course, we didn’t have the internet back in the day and no “polite” person ever discussed money. Good for you guys. I wish you all the best. A word to the wise – it takes a really, really long time to build up enough of a nest’s egg to retire on and God help you during those inevitable crashes.

    • I agree Jim, it does take such a long time (unless you come from money) to build up a retirement portfolio that is truly substantial. I’ve spoken to way to many investors who let the years slip by and the next thing they know it has been 10-15 years. Sure, you can try and catch up, but you’ll never get that lost time, in terms of compounding, back.

  10. I completely agree that now is the best time to save for retirement. Not only that little bits saved now will grow strong and nice in 30 years or so, but it’s also great to have a good starting point. In today’s economy when nothing can be taken for granted anymore, having some funds put away to let you sleep at night is the way to go. I personally am more pessimistic and I don’t think that I will get the chance to enjoy too many years of retirement (if any) but I still have to start saving for retirement, just in case I am wrong :))
    C. the Romanian recently posted..Can a Family Live on $1,500 per Month?My Profile

    • I could not agree more. We shouldn’t allow for any of that to hold us back. I hope we’re wrong in being pessimistic, though I’d much rather be prepared as possible.

  11. I started investing the first day I started my first job out of college. I was enrolled in our 401k plan and I think I even contributed up to the max in my Roth IRA that very first year. I had student loan debt, but didn’t even grasp the concept at that point that people pay for things on credit and don’t have the money saved before spending it.
    Daniel recently posted..What Was The Last Thing You Bought In A Store?My Profile

    • That’s awesome you started so early Daniel! I think paying off debt/investing can be a challenging balance to manage. Kudos to you for not allowing it to hold you back.

  12. I totally agree with you. Everybody should start as soon as he or she realizes it is necessary and everybody must realize it as soon as possible. And in this moment it is the parents responsibility to help their kids find out early, so they can start when they are in their early 20s. Not like me who acted like an idiot in the past and now has to change the marathon into a sprint to catch all those lost years. My train has left the station many years ago.
    Dividend investing Martin recently posted..Credit Card Debt SolutionsMy Profile

  13. This is a great article. I’m in your same camp. Everyone should be saving as much money as they can now versus waiting for another day.

    It’s hard to convince people of this when there is all kinds of bad information out there. Marketwatch just ran an article today about why to avoid investing in a 401K. Argh!!! http://www.marketwatch.com/story/5-reasons-not-to-contribute-to-your-401k-2013-08-05
    Derek Chamberlain with MoneyAhoy.com recently posted..Best Dividend Paying Stocks – Part-2My Profile

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