“In the house of the wise are stores of choice food and oil, but a foolish man devours all he has”

Have you ever wondered if you’re putting away enough for retirement?  Are you behind and need to make up some ground?  While you can’t make up for lost time, you can still course correct to start getting ahead. 

Most rules-of-thumb in the industry put the right rate of saving at between 10%-15% of your income. The older you are, the higher that number tends to be.  But as with most personal financial issues, each specific situation and individual goal is unique.  For instance, I have one client who has two pensions and receives Social Security benefits and is now earning $1,000 more in retirement than he and his wife spend each month.  Even a 10% savings rate would have been way more than he needed.  Most of us aren’t that fortunate, so setting aside a percentage of income each month is usually a good idea.

Free Money

If you have a company-sponsored retirement plan with any sort of employer match, start by contributing enough money in the plan monthly to get that match.  There are very few places in the world to find free money, but a company-sponsored retirement plan is one of them. If your employer doesn’t offer such a plan, or if you are your own employer, there are still significant reasons to save for retirement with tax-deductions and the miracle of compound interest.

The Miracle of Compound Interest

Let’s take a quick look at the miracle of compound interest, what some have described as the 8th Wonder of the World.  If you want to retire with $1 million, you need to save just $493.48/month if you start when you’re 25, assuming just a 5% return. However, if you put off saving until age 40, the monthly savings target jumps up to $1,201.55. In fact, a 50 year-old needs to save more than double the amount compared to a 40 year-old, just to reach the same $1 million at retirement.  Delaying just a few years can have enormous consequences.

The Bigger Picture

If you’re not currently able to save between 10-15% of your income, this would be a good time to step back and ask yourself some important questions.

  • Have I over-leveraged myself with debt so that I can’t save enough?
  • Have I set a lifestyle that is going to be difficult to sustain for the long haul? 
  • If I trimmed my budget, would it help me be more content? 

Saving and spending issues often boil down to that one issue – contentment.  Contentment never comes from gaining more, but from desiring less (of this world).  When I become convinced that this world has nothing that can truly satisfy me, contentment and savings both tend to increase.  Desiring isn’t a bad thing at all – we just need to make sure we’re desiring what can actually satisfy.  

It would seem that Our Lord finds our desires not too strong, but too weak. We are half-hearted creatures, fooling about with drink and sex and ambition when infinite joy is offered us, like an ignorant child who wants to go on making mud pies in a slum because he cannot imagine what is meant by the offer of a holiday at the sea. We are far too easily pleased. – C.S. Lewis

Baby Steps to Saving

Remember that Rome wasn’t built in a day, and neither will you nest egg.  So start somewhere.  If you’re saving 5%, see if you can increase it to 7%.  See what you could cut out of your current lifestyle and add that amount to your 401(k).  Try reducing your data plan or ditching cable.  Commit to drinking water for a few months.  Whatever you do – don’t wait!  The earlier you start, the faster you’ll experience the miracle of compound interest. 

To get a clearer picture of how much you should be saving, we recommend that you start with a financial plan.  This serves as a “road map” for the future, helping you determine how much you need to have saved for retirement and finding you the most efficient pathways to get there.  If you want a personalized assessment to determine if you are saving the right amount, contact us for a free initial consultation.