Did the ant and the grasshopper both retire comfortably?

February 19, 2008 12:21 AM

At what age did you start saving for retirement? At what age do you recommend starting to save for retirement?

I know that the smart, responsible answer is "As soon as possible," but guess I'm asking whether you can put it off for a while and still be okay-- and whether average people do.

I'll talk with a financial planner, but I wanted to get a sense of how other people have made retirement savings decisions. Thanks in advance!

posted by chickletworks to work & money (42 answers total)

I started saving for retirement at age 39. My son started when he was 18. He will be ahead of me by the time he's 50. Earlier is better. Even small amounts early on pay huge dividends over the long term.
posted by ptm at 12:36 AM on February 19, 2008

I started when I was 26. I'm only 27 now, so not a ton of time. I would start as soon as you can.
posted by disaster77 at 12:45 AM on February 19, 2008

You might find this paper interesting - Family Fortunes, a guide to saving for retirement (from the Institute of Actuaries) as it looks at more or less this exact question of how much and when you should save for retirement. A very short summary is that a lot of people don't have much money to save for retirement when they are young, but they can catch up later when they've paid off their mortgage.

There's a spreadsheet with the actual model but I couldn't find it I'm afraid - although it's not that hard to write a spreadsheet yourself that will give you a reasonable feel for how different patterns of saving affect your final pot of money at retirement.
posted by crocomancer at 1:00 AM on February 19, 2008 [2 favorites]

I think the general rule is that time is on your side, in the sense of compounding interest (when we're talking about a 401k here, at least). You are doing yourself a disservice by reducing the number of years when interest can be earned. I would say that if you have a fair amount of disposable income and you can afford to begin a 401k with at least the portion that your company will match (4% in my experience), then that's the minimum that you should do. In terms of a 401k, at least you are making 100% free money to start with.

If you can afford to put away more and top off an IRA annually, do that as well (just don't starve yourself in the process.) Oh, and the cardinal rule above all is...once you put it away, don't touch it!
posted by Asherah at 1:20 AM on February 19, 2008

Ah...and I was in early-twenties...but at 19 I knew a coworker my age who had begun (we all looked at him like he was nuts, but we learned, eventually.) He's probably halfway to retiring on an island by now.
posted by Asherah at 1:22 AM on February 19, 2008

I'll start with the second question - save as soon as you can. The miracle of compound interest means a small head start can translate into a large amount of extra money several decades down the road (100s of thousands, easily).

When did I start? Towards the end of grad school. Ever since I got into the real world, I've maxed out my IRAs and 401(k)s every year. I highly recommend doing the same (assuming you've paid off your debt, which should be high on your list - possibly higher than retirement savings).
posted by zippy at 1:24 AM on February 19, 2008 [1 favorite]

Someone else linked to this on a money troubles thread - the magic of compound interest.

Money saved and money invested early in life has far longer to accumulate and multiply. Even if you're paying off debt, invest as much as you can in retirement funds and savings, even if it's only a few bucks a month.
posted by Happy Dave at 2:01 AM on February 19, 2008 [1 favorite]

I was 16. My dad got me to open an IRA with money from my dishwashing job.
posted by The corpse in the library at 2:14 AM on February 19, 2008

"When Alice and Bob were both 19 years old they started new jobs. Alice started a savings programme, investing £1000 at the beginning of each year at 10% per annum. At the end of 7 years her account shows a total of £10435.89.

Bob, who has not saved a penny until now, is impressed by the size of Alice's nest egg, and decides to start investing in the same way. Alice decides not to put any more into her account, just letting it grow at 10% per annum. Bob is determined to build up his investment until it is bigger than Alice's. How long will it take for Bob's investment to overtake Alice's?

The astonishing answer is that it will take 32 years"

From "Have we caught your interest" which deals with some of the mathematics behind compound interest - including those used to calculate the above example. Don't leave knowledge of this stuff entirely to bankers.

The amount of money you will need for retirement is determined not just by what you are able to save however. There is also the question of how much money you are burning through in the mean time and how much you calculate you will need to retire comfortably. This is therefore a chance to recommend "Your Money or Your Life" - if your find yourself able to follow even a fraction of its advice it will make things easier.

Finally have a look at the "Retire Early Home Page" for some advice on how to do that.

Personally I would recommend doing as much of your own research as possible before approaching a "financial planner" - it is not uncommon to receive advice which is in the best interest of the planner rather than yourself.
posted by rongorongo at 2:31 AM on February 19, 2008 [1 favorite]

I'm 22, and I probably started getting compulsory super contributions (Australian IRA) when I was 17. I have a few thousand put away.
posted by jacalata at 2:36 AM on February 19, 2008

I think this book puts compound interest in perspective well with an example -- if a 25 year old and a 35 year-old start retirement saving at the same time at equal amounts, the 25 year old could stop contributing when they hit 35 and still have more retirement money than the 35-year-old who keeps on contributing. The book's advice was to start saving as soon as possible, or marry a 25-year old.
I'm recalling the example from memory but am pretty sure i've got it right - buy the book to be sure, it's cheap and useful anyway
posted by ukdanae at 3:25 AM on February 19, 2008

I started when I had my first full-time job, immediately after I graduated from college. I started with pretty small amounts, but I've been gradually increasing the percentage I save over time. I just wish I'd started even sooner, with my part-time jobs in college. I've recommended to my little sister that she start now with her part-time college job.
posted by Stacey at 4:21 AM on February 19, 2008

start as soon as you can. if you have a year in the future when you can't contribute, that's fine. just get it started. even a hundred bucks.

i was fortunate and inherited some funds when i was 22 that i used to start a Roth IRA. i've contributed most years, but didn't last year. the point is to get it started, though--it's almost impossible to make up for 10 years of not saving.
posted by thinkingwoman at 4:24 AM on February 19, 2008

Started when I was 23. I was only making $22k a year at the time. I didn't put away a lot, but I think I put away $50 a month pre-tax at first, eventually working up to the maximum allowed by the time I was 26 or 28. The magic of compound interest is a wonderful thing.
posted by jeanmari at 4:53 AM on February 19, 2008

My father started a Roth IRA for me when I first started working (approximately age 16/17). He's been squirreling a portion of my salary into it ever since. Now that I have a 'real job' I still contribute to it, along with a 403(b) through work.

I'm 23 now and apparently there's a metric fuckton of money already in the IRA.
posted by sperose at 4:55 AM on February 19, 2008

The other advantage to starting right away is that once you start contributing, it won't take long before you won't even miss that money. It'll just become part of the lump of money that goes to various things like insurance and stuff.
posted by lampoil at 5:34 AM on February 19, 2008

Started on 3 different retirement programs through work when I turned 26. I want to retire at age 55 and live the life I can't afford now. Worked with a financial advisor at the beginning. It's been 10 years now and my dream will be coming a reality as long as the world holds it together. 18 more years to go.
posted by bleucube at 5:37 AM on February 19, 2008

I started at around 25 and have always tried to put away as much as will be matched by my company. My 401k has been my only savings, and I raided it earlier this year to pay off my long lingering student loans. But I didn't empty it completely, and still have low five figures to build on.
posted by kimdog at 5:49 AM on February 19, 2008

I started once I got a full-time job (a few months afterwards, actually). I was 23.

If you are a single person with no mortgage and no children, you probably have less expenses than you ever will, so start soon and get used to having that deduction taken automatically.

If those categories don't apply to you, still do look to see what you can do. There aren't that many occasions where your expenses are going to go down later, unless that later is getting too late, like once your children finally get their own job, or you pay off that mortgage 20 or 30 years from now.

Average people definitely put it off, but that doesn't make it a good decision.
posted by that girl at 5:56 AM on February 19, 2008

I started at 17, stopped at 20.
Then at 24 I had an accident that left me unable to work.
Guess what was waiting there to pay rent?
Thanks, past-self!

[the point being, start early because you never know when you're going to need the money. There was already a bunch more in there than I put in myself ]
posted by Acari at 6:32 AM on February 19, 2008

started at 22. stopped at 27 because of extenuating circumstances. hope to start again when i'm 28.
posted by misanthropicsarah at 6:38 AM on February 19, 2008

I started when I got my "first real job" at age 27. For the first several years, I only put in as much as my company would match, because I was also paying off student loans. (If your company offers a match, you should pretty much always take it, unless you need the money for barest-bones living expenses. Free money!!!) Since I paid the loans off a few years ago I've been putting in significantly more than that.
posted by DevilsAdvocate at 6:58 AM on February 19, 2008

Started with a 401K when I was 28, then added a personal savings account to that a couple of years later.
posted by thomas j wise at 7:08 AM on February 19, 2008

I started when I got a "real" job, 23. I'm 24 now. Assuming I get an average of 4% pay increase over the next 40 years and continue investing 5% of my income to 401k, it is forecast I will retire with around 1.8 million. Compound interest ftw.

Start saving right now.
posted by phritosan at 7:15 AM on February 19, 2008

35
25
posted by kuujjuarapik at 7:35 AM on February 19, 2008

I'm planning to start as soon as I get my first full-time job. (I'm 22. Yet to have a job that actually pays because of extenuating circumstances and being a wee 'un.)
posted by bettafish at 7:36 AM on February 19, 2008

I started when I was 25, with my company's 401k. Because the contributions are pre-tax, it cost me almost nothing to put 2 or 3% of my salary into the account. Every time I got a raise, I'd split the difference. So if I got a 4% raise, I'd add another two points to my 401k deduction.

A few years later, I'm saving 10% of my income for retirement and the account is worth about double what I've put in.

Another benefit to retirement saving is that it's an asset. You don't have to use it, but there are ways to borrow against it. There are rules, but generally it's cheaper. It's complicated and I don't know how it works. But I know it exists.
posted by gjc at 7:40 AM on February 19, 2008

Even if you can't start saving a ton of money now, it's a good idea to open an IRA as soon as possible, because in order to withdraw money from it buy a house, the account has to have existed for 5 years.
posted by ThePinkSuperhero at 7:54 AM on February 19, 2008 [1 favorite]

I started when I was 23. I put roughly 200 a month in an IRA. I'm hoping to max out my IRA this year. (I'm 25).
posted by Stynxno at 8:08 AM on February 19, 2008

I started saving at 20, when I had my first summer internship. I screwed up and didn't notice the company match so I missed out on that free money.

I swore I'd never miss out on the company match again. I'm 22 now and my nest egg is in the low 5s.
posted by crinklebat at 8:18 AM on February 19, 2008

I started at 22. My company had a matching program, so it was a great incentive.
posted by Ostara at 8:26 AM on February 19, 2008

I started at 18. But, really, I wonder if I should have bothered till my late 20s. I could have bought a home earlier. 2001 market dropped most of it down. I now contribute 5x what I did at 18, so it seems like it was hardly worth the effort back then.
posted by acoutu at 8:33 AM on February 19, 2008

You don't have to use it, but there are ways to borrow against it.

The downside is that with some funds/companies, borrowing against your 401K/403B also requires you to shift your savings to safer, lower-yield sub-funds -- out of equity and growth-equity funds and into money market funds, etc.

Either TIAA/CREF or the SUNY side of the coin works that way, as near as I can tell. You can borrow against your retirement fund to buy your first house, but all the money you borrow has to get shifted to whatever the baseline TIAA fund is because that fund guarantees no loss and a small increment, but offers only minimal yields over inflation. Understandable, since if they loan you $50,000 they want to make sure that their collateral doesn't turn into $30,000 in a bad year, but having to pay interest on your "down payment" and losing a lot of yield is a really high cost.

In our case, we were offered an 80/20 mortgage last July at something like 6.5 and 8%, and the sum of the interest on a 403B loan and the expected loss of yield was something like 9--11%, so we just went with the 80/20 and left the money in the retirement account.
posted by ROU_Xenophobe at 8:42 AM on February 19, 2008

I started a little over 2 years ago in grad school at age 22, after reading stuff similar to the answers here. It actually wasn't hard, since I pissed away so much on entertainment (read: booze and eating out) - I just cut back on that and started putting $100/month into a mutual fund Roth IRA through one of those monthly plans that didn't require you to have $2000 to start.

Now that I'm on my first "real" job, I max out my IRA and 401(k) contribution. I question whether putting the full $15,500 into the 401(k) is a good idea, since there might be better places to put it. It's tax-free for now, but I don't really know where else to put it, since the market scares the dickens out of me right now [my mutual funds from grad school are currently underwater], and I've already got the 9 months of emergency take-home pay stashed away in savings. I like to think that I'm young and will ride things out, and don't plan to touch it.

Anyhow, I'm just as clueless as you, aside from the putting "anything, SOMETHING" away while you're young. I hope to buy a home within the next year or two, though, so the 401(k) savings may drop.
posted by universal_qlc at 9:08 AM on February 19, 2008

Thanks very much, everybody!

I really got schooled on this one-- I'm a little surprised by the consistency of everyone's answers. Rongorongo's example really drove it home for me. Thanks, all!
posted by chickletworks at 9:25 AM on February 19, 2008

My father always told me that it's better to put away a little earlier than a lot later. When i was in my early 20s, I had very little money but cobbled some together, tucked it into an IRA and forgot about it. I would add a little if I ever had any extra, but mostly just let it grow on its own. Now I have a 401K at work and pension and stuff, but that IRA really helps out because it's been around for so long.

Psychologically speaking, if you put it off, you will ALWAYS find something to spend that money on, and ALWAYS find an excuse not to start saving. At least if you put a little money away into a tax-free retirement account, you have put it far from your greedy, spending hands. And then you get that nice warm, smug feeling of having done something responsible for your future.
posted by kenzi23 at 9:28 AM on February 19, 2008

One note I'll add (having come in late), is that "they" often tell you that since you're young, you can accept more risk in your investments. My personal experience is that this isn't true - at least, not if you are serious about saving for retirement. In my own situation, the balance on my 401K is the same right now as it was five years ago, despite my diligently adding to it at the maximum company match amount, because of bad investment decisions (and I'm with Fidelity, so its not like I'm going it alone out here). Within the past few weeks I've moved everything to a low risk low return fund and I'm going to keep it there, because I'm tired of losing my hard earned money to the market.

Slow steady growth is better than fast risky growth, at least where I'm sitting right now.
posted by anastasiav at 10:20 AM on February 19, 2008

We started in our mid-20s, the only time one of us had a job with a pension plan. Once that job was done, we just started putting tiny amounts in IRAs (never been in another job that had retirement benefits, 401ks or other set asides), gradually building up to the maximum each year. If we retire at 72, we'll be looking at getting by, probably comfortably, but won't be one of those couples that starts travelling on their retirement savings.
posted by nax at 10:52 AM on February 19, 2008

Actually-- we also own a house that has increased 6-fold in value which we bought with an inheritance and a low mortgage (almost paid off). Any comments on the idea of maintaining liquid savings towards real estate rather than either investing in stocks/mutual funds, or borrowing against or liquidating retirement accounts? I always thought you paid a huge penalty if you dip into tax-sheltered savings. Also-- is a house a better risk than the market?
posted by nax at 10:58 AM on February 19, 2008

First real job out of college 7 years ago with a company match 401k. Avg about 6.5% gain a year according to the statements. I suggest as soon as possible, although debt reduction would be a higher priority IMO. I'm 29 now and working on the long term goals of saving for a house. Emergency fund is fine. Not having a car payment helps. If you can make do without a car try living in a city with mass transit.
posted by brent at 11:15 AM on February 19, 2008

ROU_Xenophobe said: The downside is that with some funds/companies, borrowing against your 401K/403B also requires you to shift your savings to safer, lower-yield sub-funds -- out of equity and growth-equity funds and into money market funds, etc.

Are you sure about that? When you "borrow" from your 401k you are just transferring your money that was in the 401k account into your taxable checking account. Its your money. Its not the fund's money. There is no need for "collateral" because you aren't really borrowing from anyone except yourself. They could care less what you do with it or whether you pay it back (other than the IRS rules). And it should have no effect on the money you leave in the 401k because that doesn't belong to the fund either.

That said, there is one big risk in borrowing from your 401k. If you leave your job or are fired you have to immediately pay back the loan or else the loan is considered a permanent early withdrawal subject to taxes and penalty. If you can't scrape up the money to pay back the loan on short notice, it could cost you a lot.
posted by JackFlash at 12:22 PM on February 19, 2008

I'm pretty sure I read the rules correctly. Maybe things are different on the 403b side of the world.

If you were transferring money from your 403b to your checking account, that would be an early withdrawal and you'd get hit with instant income tax on the money. If you take $20,000 out of your 403b, you get $14400 to put into your house. This is why people take loans against their 403bs instead.

And maybe other companies or institutions differ, but somewhere between SUNY and TIAA/CREF they say that the amount you borrow has to be in their baseline, low-interest no-risk fund, not in the higher expected yield equity funds. They say this is so that if you die or leave work, the outstanding amount of the loan simply gets paid out of the collateral amount and there's no tax problem.

Maybe it's just a SUNY sucks or TIAA/CREF sucks thing.
posted by ROU_Xenophobe at 5:50 AM on February 20, 2008