Let’s face it, saving for retirement is hard.  You just graduated from college, landed that first job, and now have a mountain of debt staring you in the face.  But given all that adversity, the first day on the first job is the best time to start saving for retirement.

Nothing But Time

If I learned one thing in math class, it’s the power of compounding.  And it’s biggest ally is time – the one thing you have before retirement.  Let’s just do some simple math using the Rule of 72.  Let’s assume you can make 4% on an investment.  It will take roughly 18 years to double your money.  Now let’s assume that you put $1,000 into the S&P 500 right after you get that first big job at 22.  We’ll use 9% as the S&P 500 rate of return, even though it’s actually a little higher historically.  That means your money will double every 8 years.  So at 30, you’d have $2,000.  At 38, $4,000 and so on.  By the time you retire at 54, you’ve had 32 years of compounding and 4 doublings of your initial investment.  Now your initial $1,000 is worth $16,000!!!  Now let’s assume you don’t start saving until you’re 30, your $16,000 just turned into $8,000.   Just half of what you’d get if you started just 8 years earlier.  And if you start at 38… Yikes – only $4,000 in the bank by your mid 50’s.  And remember, the initial investment of $1,000 is the same in all these scenarios, only the time to compound is different.

Just Start with Something

Your company probably has a savings plan like a 401k.  The best tip I can offer is to start as soon as you can.  At a minimum, start with the highest amount that the company will match – 3%, 6% whatever.  Trust me, once you get over the initial pain, you won’t miss it but you will notice it every quarter when you look at your retirement account.

 But I’m Broke!

If you’re reading this post, you’re not that broke.  You probably have debt – Car, home, student loans, kids, etc.  And you may not have much in the bank.  What saving for retirement really takes is discipline.  Get a new cell phone every year?  Say no and put that extra $700 towards retirement.  $120 per month cable bill?  Nope, there’s another $1,440.  Starbucks every day?  No thanks – $1,300.  Lunch out every day?  Another $1,700.  It all adds up.

 Now that You’ve Started

Hopefully, you’ve become addicted to watching your balance grow.  When you get that first raise, it’s awfully tempting to ramp up the spending.  But saving for retirement takes discipline.  Instead, bump up your 401k contributions.  You’ll be glad you did.  Do this year after year until you’ve maxed out your 401k, hit your annual IRA limit, and paid off your debt.  I went at least 8  years without realizing a salary increase. Sure I received them, but I plowed that money right back into saving for retirement.  Another goal?  Plan to save half of what you make.  Maxing out your 401k ($18k in 2017) can get you a long way there.  Add in an IRA contribution of $5,500 and you’re really on your way.  It is painful at first but you get used to it quickly.

 Retrospective

Looking back, these suggestions are what got me to where I am today.  Start early and have the discipline to keep adding to the savings without increasing your spending.  You can get there, just start and keep focused.

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