Personal Finance

My career in finance has taught me some things along the way -- if only I knew then what I know now!


Saving money for retirement is the last thing on the minds of most 21 year olds. That first real job after college or high school can lead to moving into your own place, buying that new car, paying off college loans, and starting a family. With so much happening now in the life of a young person, why even think about saving for retirement? Two answers: first, the mathematics, and second, it'll be here before you know it!

Numbers Don't Lie

Let's start with the first answer – the math. If you start saving $40 per week when you turn age 21, by age 71 you will have saved $104,000 (50 years x 52 weeks x $40). If you earn an average of 5% on the savings over those 50 years, the savings plus earnings balance will be about $465,000! If you procrastinate and don't start saving until you are age 30, the savings plus earnings total at age 71 will be $281,000; if you start saving at age 40, the savings plus earnings total at age 71 will be $154,000! The sooner you start the greater the effect of compounding – earnings on your earnings.

If this savings plan is within an IRA account or 401(k) type plan, the earnings will not be taxed until you withdraw the funds. You are far better off deferring the income taxes until retirement assuming tax rates are fairly constant over the years.

Find the Leaks in Your Bucket

Sounds great - but where do you get the $40 per week to save? This is where self-discipline comes into action. How many latte, frappacino, mucho grande coffees do you drink each week? Can you eliminate dinner out once a week? Can you brown bag your lunch at work? If you make the effort to search for it, there is a great chance you can find the $40 per week for the savings plan. Altering your life-style now to achieve a better life style or retirement in the future is an exercise in self-discipline. Motivate yourself to save with the end goal in mind.

Your Future Self Will Thank You

Now the second answer – it'll be here before you know it! It was just the other day I was age 21, starting a new job and buying that first new car. Now I have three adult kids and four grandkids. If I had started out with just $40 per week in savings, and then increased the savings amount each time I received a pay raise or changed jobs at a higher salary, the compounding would be – oh, I can't think about it! If only I had known then, what I know now.