A calculator

Saving by Choice, Not by Chance

A reader question I answered some time ago brought a small avalanche of mail, mostly from readers who were aghast that I would suggest they save such a significant portion of their paychecks for retirement. It was money they just didn’t think they could afford to save.

A calculator

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I can only imagine that for a person who saves nothing, suggesting they should be saving thousands every year is shocking. Or more like impossible! Here’s just one of those messages:

Dear Mary: I am a 34-year old college grad. My school debt is approximately $46,000. My car loan is $8,500. I have a chronic medical condition that costs me thousands each year. I was reading an article that you wrote where you told a reader that she needed to save the maximum allowed in her 401(k), which I believe was $15,500 a year, plus save an additional 10 percent of her net income in her emergency fund. I am barely making it right now, though I work full-time as a teacher and make approximately $65,000 dollars a year. I would love to know what you would suggest I do to start being able to save that much. Heather

Dear Heather: I recall the article to which you refer. Reader B.H., as she identified herself, is a recently single mother with two college-aged kids, barely surviving because she is putting the financial support of her two adult children ahead of her own financial care. She’s in a difficult position.

I recommended that she immediately shift to taking care of her own financial future now that her children are old enough to be on their own. I went on to point out all of the ways she needs to be crash-saving for her retirement because, at this point in her life, she is all she can count on. She must begin to take care of her own financial future.

I responded to B.H., “You need to make sure that you are contributing the maximum each year* to your employer’s 401(k) or 403(b) retirement plan. Once you reach age 50, you can increase that amount by another $5,000 per year, and you should.”

Of course, she is not required to contribute any amount to her employer’s retirement plan, and she can contribute any amount up to the maximum allowed each year. At this point in her life, however, it is important that she push hard to reach the maximum.

You may believe that you cannot save because your debts are high. Or you may believe that despite the fact that you make a decent income, you just do not make enough money to save anything at all. Wrong. How much you save has little to do with your income. It has to do with the choices that you make.

Even with your large student debt and car loan, at $65,000 per year,  you have—or should have—some discretionary income. It all comes down to what you choose to do with that money.

You can choose to spend it now or you can choose to save it. Even if all you can save is five percent, do it. Start now. Then start looking for every way you can stop spending so you have more money to save. Track your spending. Know where every penny goes.

The sooner you start, the more time your dollars will have to grow. The choice is yours.

For my readers who only wish they’d started when they were 34 years old, I will tell them they cannot change the past, but the future is a blank slate. Start today. Make the tough choices, the difficult decisions. Embrace simplicity and be willing to make sacrifices.

It’s only too late if you don’t start now.

*The maximum allowed for 401(k) and 403(k) annual contribution for 2019 is $19,000. The limit on annual contributions to an IRA is increased from $5,500 to $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

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5 replies
  1. dkrow says:

    Dear Mary, I wish I had known you 25 years ago when I attended a company held workshop on my 401K. I spent an hour listening to basically what I was supposed to be doing if I was going to be retiring in the next 10 years. At the end, I asked “How much I should be saving now?” The presenters response was oh, if you start saving 4 or 5% now you should have plenty to retire on in 35 or 40 years. Luckily I ignored him and started at 10%.

  2. Thrifty says:

    I have trouble with that advice but for a different reason. I’m in my mid 40’s and have very little in a retirement account. I owe $24k on my home and have no other debt. I had retirement accounts and I spent a lot of energy trying to make well informed decisions with them. You can research a fund all you want and the second the management changes, its a completely different animal. So after a couple of small downturns lowered my balances, the big one caused me to cash out and lose half of what little was left to stay afloat. I don’t trust the financial markets. Now that things are back to normal (for the time being) I participate in my employer’s program just enough to get the employer’s contribution. The plan doesn’t offer anything stable like a money market. You have a small handful of funds to choose from. I feel much better saving on my own, outside of the plan where I won’t lose half of my money if I need it so that’s what I do. I couldn’t tell you my 401k balance, but last year I saved probably a third of my gross salary. Any suggestions for those of us who don’t trust “the system” about how to grow our savings outside of the markets? The only thing I can think of is investment real estate but I haven’t found my entry point for that yet.

  3. Jackie says:

    My daughter never asked us for financial help when she was in college. Instead when she graduated from school she went into Job Corp to train as a secretary. Then while she was in Job Corp she was approved for a Pell Grant for College where she was able to get a Associates Degree in Early childhood Education. All this was done while she was in Job Corp. The Pell Grant letter said we were able to donate so much for her education which was a joke because both her Father and I are Disabled Veterans but instead of asking for the money (we found out that after she graduated) she taught ESL to a sweet Mexican girl we consider a second daughter. She worked her way through college and I was so proud of her when she graduated.

  4. Tina Delph says:

    What do you do to save when your job doesn’t offer a 401K plan? I’m 36 yrs old and live paycheck to paycheck. I would like to start something like a 401K but dont know where to go to do that since my employer doesn’t offer one? I heard the IRS offers something of the sort but not sure about that? Does anyone have any ideas?

  5. Cheri Johnson says:

    You’re advice is ‘right on’. We didn’t take retirement seriously until we were in our 60’s. Fortunately we have not had debt for sometime, my husband’s salary is above average, and we live modestly. My husband is planning on working until he’s 70. We have been maxing out our IRAs and investing as much as we can. We had counted on selling my husband’s share of a business which may not happen. We are able to retire on the Social Security, savings, and investments we have made (somewhat modestly) with out selling his shares. We certainly could have started early and had less stress in this whole process.


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