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.
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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.