Late to the retirement savings game? Me too. Here's what I tell myself.
A few weeks back, Personal Capital, a free service that helps you keep track of your net worth*, sent out an email asking bloggers how families can build their net worth and save more through making small changes--financial or otherwise--to their lives.
(*this is not a sponsored post, just FYI.)
And they wondered if I had ideas about how I could have started saving earlier.
Retirement savings aren't something that I talk about a lot here, mainly because this is NOT an area where I'm an expert.
And Mr. FG and I have definitely not done all the retirement things the experts say you should do.
For instance, you really ought to start saving for retirement when you're in your early 20s. Buut, when I was in my early 20s, we had barely two pennies to rub together, so retirement savings weren't even on our radar.
If you're trying desperately not to drown, the last thing you're thinking about is how to build a boat, you know? You're just trying to stay alive for the moment.
Anyway, due to our late start, sometimes thinking about retirement savings makes me feel a little bit panicky (!), so here are a few of the things I remind myself of when I need to talk myself down from a proverbial ledge.
1. If staying out of debt is all you can do, it's all you can do.
I know everyone says that in order to save for retirement early, you need to cut your spending and save the extra. But when Mr. FG and I were living on a very tight budget, we had to work hard just to stay in the black, let alone have any extra dollars!
We did manage to set aside some money for savings every month, but that just functioned as an emergency fund, which helped to keep us out of debt when unexpected expenses came up (like a dead heat pump. Oy.)
But you know, I consider staying out of debt to be a huge accomplishment. Sure, we weren't making forward progress toward retirement, but we also weren't digging a hole for ourselves.
Considering that the average American family has $7200 of credit card debt, this is not an accomplishment to be sneezed at.
2. Better to start late than never.
You know that old proverb that says the best time to plant a tree was 100 years ago; the second best time is now?
I feel like applies pretty handily to retirement savings.
Would it have been awesome if we'd stashed away a bunch of money when we were in our 20s? Sure.
But it's better to start late than never, so that's what we're doing now that we have more income. We've got a 401(k) with (some) matching at Mr. FG's work, plus we have a personal IRA through Capital One 360.
We're definitely not going to be able to retire in a few years, but at least we've got a good start on things now.
3. Frugal habits mean you don't have to save as much.
Ok, so, there are some scary possible expenses to save for in the future (Medical care! Oof.), but generally speaking, if you don't have high-on-the-hog spending habits, your retirement fund is going to go a lot farther than if you have a high-maintenance lifestyle.
I know how to live a good life on a small budget, so I know that I'm not going to need to save a billion dollars before we can retire.
4. Paying off a house totally counts.
I look at our payments on our mortgage as another way we're inching toward retirement. If we pay off our house, then we can happily live in it as long as we want while only paying taxes and insurance.
Or if we end up selling it and moving somewhere else in our retirement, having it paid off means that we'll walk away with a nice chunk of change to pay for a difference house.
Either way, having a paid-off mortgage means that retirement expenses will be much more manageable.
(And actually, my Personal Capital account takes that into consideration for my net worth, adding up both my home's value AND how much the home is currently worth.)
5. Communicating about money is life-changing.
If you're the only person responsible for your finances, then this is obviously not true! But if you have joint finances with someone else, communicating regularly about those finances is super important.
(Otherwise, it's so easy for the bill-payer to be the only one with knowledge, and that makes it hard to work toward goals together, like retirement.)
I'm the bill-payer in our house, and the monthly money emails I do for Mr. FG have been so helpful. Their existence means we talk about the state of our finances at least once a month, and that makes it a lot easier to prioritize our spending and saving.
Added bonus: good money communication skills are going to come in very handy during our retirement years, I think. They're important now, but I imagine they'll be essential when our income is more fixed.
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I'm positive that a number of you out there are way more retirement-savvy than I am and I know there are some of you who have already retired.
So, share your wisdom with us! Any tips for starting young, or for making up lost time if you're starting late?
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Disclosure: Personal Capital has not sponsored this post, and I'd had my account for a while before I got the email that prompted me to write this post. Personal Capital links are affiliate links, which help to keep the lights on around here at no extra cost to you (and actually, Personal Capital accounts are free, so...)
I've been thinking about this topic for a few years now as well. One step in the process is to consider what your expenses will be in retirement. When I did so I came to a realization: frugal people's expenses in retirement don't change much. It was not a happy realization.
- We brown-bag, so food expenses won't change much.
- We buy inexpensive clothes, take good care of them, and make them last, so clothing expenses won't change much.
- We keep the house chillier/warmer when we're at work, so that expense will actually go up (unless you have someone at home at the same time, in which case that expense won't change).
So when a retirement organization says that in general, one's expenses decreases by a certain amount in retirement, don't assume this will apply to you.
So true, right?!
Yup, that's true. If you've been eating out, buying expensive work clothes, spending lots of commuting, etc, then you could expect costs to go down.
On the upside, all those years of frugal living during your income-earning years will mean you have more to sock away for retirement!
Yep! Very true - it's one of the principles behind early retirement too. Don't spend as much and you don't have to save as much and work into your 70s (or ideally your 60s or 50s). Those calculators always surprise me when it comes to how much they think I'll need in retirement - it really speaks to how much people don't save (disclaimer - I'm talking about those that make enough but have credit card debt & buy stuff they can't afford 😉 , not those that are barely scraping by.)
My concern is always health care - I feel much less confident about being able to financially plan for whatever that expense will look like in 20, 30 years. :/
Yeah...that seems to be the most enormous wild card. What will the health care scene look like by the time I retire?
The thing about health insurance is that even if you have platinum coverage, as my husband and I do, when you get ill the costs not covered are enormous. I had a catastrophic illness two years ago. Nine surgeries. Insurance did not cover deductibles, charges that they marked as excessively costly even though there was no way to go to a place where the operations would have been less expensive, ambulance rides if they think you could have driven yourself (no matter that I was on oxygen and one hospital was transferring me to another because they didn't feel they could handle such an emergency surgery---that little ride cost us 3,000 because the ambulance company said I needed their highest level of attention and transport and it was not covered by insurance), costs for my husband to stay with me at the hospital in another city (food, hotel, gas to get there and back), equipment that insurance will not cover or argues about so long that you give in and buy it yourself, and child care because you cannot subject yourself or your child to 18 hour days at the hospital sitting next to a mom in a coma. And then there are the hospital errors you end up paying for---one time I was admitted from ER to intensive care. The hospital neglected to get prior approval for hospitalization and so we had to pay slightly more than 12,000 for those not covered costs. Our retirement savings are now drained and I live every day terrified that I will get ill again. My only solace is that we both worked two jobs at one point and paid off our mortgage in 5 years so we at least we have someplace to live. If the worst happened and we had to declare bankruptcy (the majority of bankruptcies are due to medical costs, by the way), they could not take our home away from us.
I was forced into retirement when all teachers in New Orleans were terminated from their jobs 10 years ago. I had 3 years left to gain full retirement benefits. I worked part time after that until I was 69, but now am living on very, very little. It's tough. Food prices have risen dramatically and utilities as well. Living on a fixed income means as costs rise, your income doesn't and that is extremely difficult. I don't own a home and rent increases yearly.
I try to stay positive and believe it will all work out. And live as simply as I can, while enjoying my life.
That is devastating to lose what is promised to you -- very sorry to hear this. I really admire your grit and attitude. Stay well and happy and keep enjoying your life! Thank you for this reminder to all of us that Things Can Change. take care!
Don't get down on yourself if your early efforts kept you out of debt! That is extraordinarily valuable for one's retirement. Plus you've formed good habits for the future.
If you want to make a retirement planner pull zir's hair out, say that you will still have a mortgage after you stop working. That's a millstone around a retiree's neck. Better to work to pay it off while you still have substantial income, than to face that substantial debt in retirement. (There's a certain situation where that doesn't apply: when your mortgage rate is a fraction of current interest/inflation rates. So if you got your mortgage in the early 1970s at 2%, and retired in the early 1980s when inflation was 13% and interest rates were 18%, then don't pay off the mortgage early. But that's a rare situation and you can't count on that happening to you.)
One more tip, a subset of "Better late than never." If your employer matches your retirement savings, structure you savings to maximize the matching. Generally this means stretching out your contributions over the full year.
+1 to employer retirement accounts. Assuming they're saved in your name (my mom's had a few companies where retirement accounts were put in the company's name... ahem... yeah....), whatever your employer will match should be what you contribute, if you can contribute. So if they'll match what you put in up to 2% of your salary, contribute 2%.
Beyond maximizing that match, you can decide if your employer's 401(K) options are good enough as your primary investment strategy, or if you'd rather pursue a larger variety of opportunities through some other investment options like an outside IRA, stock trading, or just socking it into a bank account or other less-risky plan.
"had a" as in "worked for...." My mom's not that sketch. 😉
Ah..... retirement....!!
I see my mom, 63 year old, struggling at the moment, and this scares me. She's been self-employeed all her life, single mom, not much savings, and she would like to retire now but can't. This is sad.
And then I think about my own situation.
I am married to someone who is money smart (like me), make a good salary, has been contributing to his pension fund and savings since he is 25 (he's now 30). And then me, who is working part-time only (because I'm taking care of the family), a little bit of savings, contributing to my pension fund as well but not as much since I'm only part-time and been contributing for only 4 years.... and if I was not married, I think I would end up like my mom! So this is always at the back of my head, really. I don't like to depend on someone else to have money, this makes me feel weak, in a lower position..... and scared.
We do live a low-maintenance life, but we are paying 2 houses (with all that comes with) at the moment (the old house is not selling in the saturated market 🙁 , and this is crap. So once this situation is resolved, we will be able to start putting money away once again, and I'll feel better.
This is one area that I actually did good at in my life. Not because of my efforts though. I work for the state and have since I was 22. They automatically take out 8% of my check and match it every time. So I have been at my job for over 14 years now and am 36. My husband did the same thing. My mom still doesn't think I will be able to retire though. I told her with both of our incomes and a paid off house why wouldn't we be able to retire. Our house will be paid off by the time we are 47. Even with ridiculous health care costs. My student loans will be done by then and we shouldn't have any credit card debt. Of course that is because I have learned so much from this awesome blog:)
I do think you are doing a wonderful job Kristen. I honestly think with your frugal habits that you will be just fine.
So jealous of the matching! It was until the last few years that Mr. FG finally landed at a company that does some matching (though not 8%, sadly).
I didn't realize at the time I started my job with the state what awesome retirement they have. I was young and dumb. Just so thankful that I stuck with it. It can be kind of a stressful job sometimes and the hours are not that great with my family life. I think because I have stayed with it so long that I want to finish it out. I do however admire your ability to stay debt free. I still have student loans and some credit cards that I am working on. Nothing outrageous, but still. It is hard once you have children I have found that out. Have a good day.
A topic that looms ever more largely for us (late fifties) yet I'm no expert either. Have to agree with WilliamB that staying solvent and establishing the happy, sane lifestyle you currently enjoy is no small feat! And sets you up for these saving, planning years very well. So sounds like you are in great shape -- kudos!
Not being huge spenders now is a bit of a double edged sword -- we won't have that big decrease so beloved of retirement experts, as WilliamB points out -- won't have to give up the cruises I didn't go on, the designer fashions I never bought, etc. -- wait, maybe that IS a plus 🙂 And really, I don't think I will need the bazillions prescribed by pretty much every retirement article/checklist/calculator I've ever seen that seem to imagine a life in retirement i never lived before. That said, we too, built up our IRAs, starting about when you guys did, and with husband never having a set pension fund and me only getting one when I began teaching at 49. And they add up, they truly do, even with the gut clenching recessions! I know I can't foresee the future (medical? -- really, very, very confused . . .) but am hopeful that we are doing what we can.
So, I guess I am saying, bravo! and be of good cheer -- we are mindful and careful and doing our best. Your blog is such a help in the day to day practice that supports these long term goals -- and cheerfully, to boot! thank you!
It's totally a plus....the money from those designer dresses you didn't buy can go into your retirement fund. 😉
One important thing when you start out young is to put as much into your retirement accounts as possible and bump it up a little each year. If you can start doing this with your first full time job you will never miss the money because you never really see it.
I'm a 30 something year old engineer in a really well paying field and it has been pretty easy for me to save for retirement. But I have a lot of friends who make similar salaries and have virtually saved nothing for retirement. Unfortunately youth and high salaries generally add up to massive lifestyle inflation instead of high savings rates.
One idea I've heard is when you get a raise or bonus, put half into savings (retirement, emergency fund, life happens fund) and think of the other half as your permanent increase in income.
Another good idea that my dad has impressed on my brother and I: to stay as healthy as possible. Eat right, exercise, watch blood pressure, etc. This will keep a lot of expenses down. I realize that there are diseases and things you can get that are either genetic or out of your control (my mom was in very good health and still passed away from cancer). But, to be in good health, as much as it depends on you, saves a lot of money prior to retirement and after.
That's a really good point. There are things like type II diabetes that are mostly avoidable through lifestyle.
Kristen, all good points that you and others have stated. Fortunately, my husband and I are retired and fairly comfortable now. We did not start saving for retirement in our 20's. Never even occurred to us. After our daughters arrived we were a one income family living in an expensive area of the country with a mortgage and several pay cuts during a previous recession. Frugal living was mandatory. We moved to another state where we could pay cash for our home.
I worked part time for a social service agency that provided food boxes and clothing items for people in need. After hearing several women's stories, I realized the only thing separating them from me was a man with a good income. I decided I better get serious about things and went back to school to earn a bachelor's and master's in social work. Frugal living and my husband's hard work put 3 of us through college.
I then went to work concentrating on saving for retirement. Thanks to the "catch up" plan my retirement accounts are in pretty good shape. We are still living frugally, but well.
Totally agree healthcare and possible need for long-term care is a wild card, as is the economy and the stock market.
This topic is near and dear to my heart. I never earned a huge salary, didn't start particularly early, was scared of investing and was still able to retire at 54.
I have a few thoughts to share on this topic, time does not allow at present. For now, I'd like to recommend the Mr. Money Mustache (MMM) blog and forum. This site gave me the encouragement to save for early retirement, and the courage to actually pull the trigger. I often recommend TFG and Katy's Non-Consumer Advocate on the MMM Forum, so I'm glad I can share the MMM word here.
Caution: Mr. MM's language is salty, so if that bothers you, don't go. If it bothers you a little but you can look beyond it, there is a treasure trove of awesome material to be discovered there.
Agree! Love MMM but wish he could write without the "salty" language. (Great way to put it---I will use that when I recommend him to others. Up to now I have said that he swears a lot.)
Very well put. I think that everyone's personal finance path is different, and I agree that staying out of debt is a major accomplishment at any income level. My husband and I had college degrees and no kids on our early 20s. We worked hard to pay off his student loans very quickly so we could save for retirement. We built up a nice little nestegg. Our 30s are a little like your 20s. Because we feel secure with the money we have saved, we are expecting number three, and I'm back in grad school, we are concentrating on staying out of debt and paying daycare bills instead of saving more for retirement. We're also focused on saving for college. I wish we could save for retirement too, but it's just not a priority for us right now.
Watching my friends and family who have successfully retired the number one rule appears to be: Stick with it.
Stick with a good marriage so you can make the best Social Security withdrawal decisions based on which of you earned what.
Stick with your first house so you can be mortgage free early on.
Stick with a good job that pays well and matches retirement contributions.
Stick with a budget so you spend what makes sense rather than what feels desirable at the moment.
Stick with a savings plan you can manage so you don't feel deprived along the way making you want to throw it all over.
If you stick with most of those those things, at retirement you can have the financial freedom you need to feel able to make new choices.
Like selling everything and moving into an RV to go see this great country like we did.
I could only afford to put $100/mo into my Tax Sheltered Annuity through most of my teaching career. But like you, Kristen, I considered my mortgage payments an investment toward retirement. After I got my house paid off, I upped my TSA savings to $300/mo for about the last 7-8 years I worked. Then when I got to within a year of retirement, I upped it to $1000/mo. I wanted to stash away as much as possible while I was still eligible to save "earned income", plus wanted to get used to living on less income per month. By then, I had my house and car paid off, had everything I needed in the way of clothes, things for my house, etc.
When I retired, I found my expenses to be much less than when teaching. I no longer had to buy gas for the 25 mile round trip to work. I used to put over 10,000 miles on my car each year, now it's around 6000. I no longer need to invest in professional clothing. My clothes purchases each year now might include a couple of new sweatsuit outfits, at $6.97 for each shirt and pants, a pair or two of capris, and 2-3 new shirts to wear around the house. Once every year or so I buy a pair of good slacks and a sweater or jacket to wear for good, just to keep some variety in my wardrobe. This is much less than what I had to spend to dress in professional looking outfits and shoes. And in teaching, somehow you end up spending hundreds of dollars a year to supply your classroom, so that was no longer a need. My state retirement is almost what my teaching take home pay was, since I always took tax shelter options (TSA, medical benefits, etc) with as much of my pay raises as I could, so I was used to bringing home a smaller paycheck. But I was amazed to find that while I spent most of my monthly pay check while teaching, after retirement I ended up having several hundred dollars left at the end of each month. And this was in spite of having to pay my own health insurance, which was formerly a free benefit from my job! I have finally given myself permission to spend some money and do some redecorating and espansion of my home, which I had to put off while working!
So, in summary, my worries that I could never possibly save enough to live comfortably in retirement were not realized. I live well on only my state pension. My Social Security pension (which definitely would not be a livable wage) goes straight into savings for big items like a new car or more remodeling. So for me, retirement was a pleasant surprise, and I am enjoying a stress-free life while still being well paid by my pensions. A teacher's salary is never very high, but the retirement plan has been great!
Hi Kristen. Like you, I was very frugal and thought retiring with no debt and paid off house was all I needed. Now, retired and nearing 65, I realized I made some errors in my 'retirement planning'. #1 the paid off house needs updating, repair, maintenance and those appliances need replacing. #2 if you think of selling, you may not get what you had hoped ($100,000 loss in equity at my age is nothing to laugh at). That means we have to live on less. real less. All the frugality in the world might not cut it. #3 I am SHOCKED at how much Medicare is going to cost me and how many medical things it doesn't cover. Supplemental health insurance is very expensive. Most of these charges are automatically deducted off your Social Security check, again leaving you feel poorer than you can imagine.
What's the lesson here?
SAVE SAVE SAVE SAVE SAVE
I am sooooo sorry I didn't take my retirement much more serious than I did. Time goes by real fast. Don't expect your kids to help you out because they have their own life and expenses of their own. Don't worry about college costs or weddings. Let your kids pay their own way. Get down to the business of saving for your retirement because once you get older, it really is too late.
Good luck!
I may not have been able to put a lot into savings, but I have been contributing towards my retirement for over twenty years now through my employer. Compound interest has been good to me. It came out automatically from my paychecks, so it was totally pain free.
I believe that you should at least get your employer match, even when getting out of debt. It's part of your salary and should never be turned down. (This is how I disagree with Dave Ramsey.)
It's tremendously difficult to plan retirement savings when you're a farmer.
I started to expand on that, but I guess that's really all I have to say, after all.
Oh, I bet. So many variables. Self-employment of any kind is like that, but I suppose farming is especially difficult to plan!
One thing I am not seeing addressed is the cost of nursing home/home aid assistance. Frankly this scares me to death as I am writing a check for my 93 year old mother for about $4000 per month (and we live in the mid-west where it is cheaper than the coasts). Yes, you can get nursing home/ assisted care insurance but it also is very expensive and typically ends after 3 years unless you are willing to pay for a premium policy. Unfortunately you can live as frugally as possible, and still see 100% of your assets eaten up after a few years in a nursing home. All of us hope not to ever have to be in one, but you must be realistic.
Yup-that's what I meant by healthcare costs. I was lumping nursing home/health aid stuff in with that.
I really, really hope that I can live on my own until the very end. My grandpa is 98, and he still lives in a house, with my uncle nearby to check on him. I'd love to end my life that way rather than in a nursing home.
Well, I said I'd post later and I'm sorry it took me this long. Since I don't expect a lot of people to read my comment this late in the game, I'll write it as if I was speaking just to you, Kristen.
I think you are doing an awesome job so far. The reason it's crucially important to think about retirement spending early is the sooner you start, the fewer actual dollars you will have to save. The following nuggets are things I wish I'd known at a much younger age.
First Important Example: Person A opens a low-cost retirement account when she turns 20 and puts $1000 a year into the account for ten years. She stops adding to it when she turns 30. She lets it stay invested, without adding to or taking from, until she is 65.
Person B waits to start until his 30th birthday to open the same type of account. He faithfully deposits $1000 per year until he turns 65. Who will have more money at age 65?
Person B, who has saved $35k vs. Person A's $10k, will never catch up. That's the magic of compound interest.
Second Important Concept: There is a difference between unsecured debt (like credit cards = very bad) and secured debt (like a mortgage = not necessarily bad, possibly even good for wealth building, imagine that!). Having a low-interest mortgage can allow you to save earlier for retirement, and the longer that money has to grow, the more you will end up with. Make peace (hee!) with your low-interest, tax-deductible mortgage, and put the extra money into tax-advantaged retirement accounts. Waiting until you pay off the mortgage at the expense of retirement saving is a losing proposition. So, stop prepaying the mortgage and direct that money into retirement accounts, especially if your employer has a match. Always get the match. No match? No worries, you are still deferring taxes, so that more of your dollars are working for you sooner.
Important Thing the Third: You can borrow for college, but you cannot borrow for retirement. Related: If you must borrow for college, put the loans in the children's names only. They have many more working years than you do to pay the money back. If you've followed the other advice, you will have enough money to help them later, if need be, AND enough to retire on yourself. It's putting your air mask on first, and yes, it's Very Important.
Fourth. Bonds are not always safe. Do not put money you will need within a few years into anything that has the potential to decrease in value. For every point interest rates rise, bonds fall 6%. Does anybody believe that interest rates will stay this low forever?
Fifth. Do not invest in anything you don't understand is good advice, but it doesn't mean it's okay to just stuff money under the mattress. It means take the time to learn the basics of investing, because the risks of mistakes are great, but so are the rewards of investing well. The return for time spent learning this stuff is huge.
In a nutshell, that's the stuff I wish I'd been taught in school. As I mentioned earlier, I made mistakes and still got to FIRE anyway, but it was harder than it needed to be. Time is the most important element in retirement savings, and it can't be regained. I believe we would be better off as a society if every high school graduate had a basic understanding of finances before they headed out into the world of college and beyond.
Lots of good thoughts!
I agree about the mortgage. My point in mentioning it is that even in our years when we weren't able to sock away retirement savings, we still were faithfully paying our mortgage, and those payments were helping to put us closer to a stable retirement. So, it felt like we weren't making progress toward our retirement, but at least we had the principal of the mortgage working for us.
College savings: We do put some money aside every month for our kids' college savings, but it's not much. Luckily, they should be able to knock out at least their first two years at a good community college, which will seriously help their financial situation. Two year's worth of college loans are a lot better than four years!
At my first job, when I was making very little money, my first boss pulled me aside & recommended that I start investing in our corporate 401K. We had a very generous matching policy, and he gave me the entire talk about starting early, moving towards maxing out as I got raises, etc. I was 22. I've been maxing out my 401K for probably 10-12 years, and feel like we're in good shape. My husband is a bit behind me, but this frees us up to do other things. I'm planning to take some time off (first time in nearly 20 years!) & being ahead/on target for our retirement makes this a viable option.
Thank u for the informative post Kristen. I didn't remember this post, but have been worrying about retirement for awhile. I am 37 and haven't started yet, but have only a few thousand in credit card debt, no house or car loan, and no medical. The retirement money articles assume that everyone has that debt. Oh and we also don't have kids and probably won't, Which will save us A LOT with expenses.I won't worry, but will start saving soon.
A money saving tip we've used is to stop giving presents for holidays. I know this won't work for everyone, but for us, we've stopped with the automatic, regular spending of money on things just because the calendar says it's time. Instead, we'll give gifts when we see something that will make a person's life better. Not being tied to the holiday schedule means we can sometimes get good deals on things. It also means we can look for things that will make a difference in the person's life for many years. But we've also refocused ourselves to give our time to people ... that tends to have a longer lasting effect than presents ever had.
Along the same lines, I tell people not to give me gifts. I don't need anything. Don't get me wrong, of course, I could use more books, a new computer, etc. But I make do with what I have. If people want to make me happy, the best thing they can do is spend some time with me, doing things that I enjoy.