Twenty-something savings

Back in 1883 when Chancellor Otto Von Bismarck of Germany introduced the concept of retirement at the age of 65 hardly anyone lived to collect.



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Life expectancy at the turn of the 20th century was just 49 years. The world’s changed a lot since then. And increased life expectancy is one reason retirement planning is such a Big Idea.

If you pick up a book on retirement planning that even deals with 20- and 30-somethings, you’ll see the standard advice:

• Think about what you want from your retirement
• Run the numbers
• Create a plan and stick to it

Problem is, most 20-somethings can’t imagine what their lives are going to be like when they’re 40, never mind when they retire. If I had used my grandmother’s life, or even my mother’s life, as my guide, I would have been WAY off base. But I knew I would need money. And I knew the only way to have money is to make money and not spend it all.

The big message for a 20-somethings isn’t that you have to figure out how much you’re going to need, it’s that you have to get into the habit of saving. And that means not spending every red cent you make no matter how great the temptation. It means giving a nod to the idea that money not spent now is money you’ll have in the future. And it requires that you be conscious about what you’re doing with your money, as opposed to just letting it slip through your fingers.

The struggle to balance building retirement assets for tomorrow against today’s very real demands for cash means that often the Big Idea is pushed to the side. Ooops. There goes the Big Idea, hidden behind “not enough money”, “making ends meet” and “paying off student loans.”

It doesn’t take a lot of money to get on the savings train. Start saving in your early twenties and you’ll only have to sock away about 6% of your income to end up with enough. Since you have time working for you and you’re in it for the long haul, you’ll only have to save 6% for your whole life. That’ll sure take the pressure off when you’re also paying down a mortgage, having babies and having a life.

It boils down to this: would you rather save 6% starting now, or 18% later when you also have kids to raise, a mortgage to pay, and only the lord knows what other competing priorities?

Don’t be tempted to put off saving because later you’ll be earning way more money and will have more money to save. Life doesn’t get easier just because you make more money. If that were true, nobody who made above the average income would be worried about retirement. And that simply ain’t so.

There are a bunch of folks who have been making really good money who don’t think they’ll have enough when they retire. It would have been so easy if they’d started to save as soon as they started earning a living. Young’uns, listen up! Don’t do what they did. You’re smarter than that.

5 comments on “Twenty-something savings

  1. I started putting money into my retirement savings when I was twenty & I pulled it all out to use the first time home buyers plan for a downpayment on my apartment. I couldn't think far enough ahead to imagine what retirement would look like, but I knew I wanted to buy property eventually. Now I'm in the habit of saving & I wouldn't change a thing… not for all the shoes & instant gratification in the world; there's nothing like home ownership at 25.


  2. where do you get 6% from, I've always heard 10% is the golden rule.


  3. 10% remains the golden rule, but I think the point is that even 6% will make sure you get there comfortably enough.

    I started saving when I was 22, and what maybe could have been mentioned in the article is:
    "Pay yourself first!"

    I couldn't have saved half as well as I have if I hadn't set up my bank to move 10% of my pay cheque to my savings account automatically. Once my monthly purchase of whatever investment is taken out of my chequing account (the same 10%) then I reimburse myself from my savings account only if I have to. That way I'm saving at least 10% minimum for retirement.


  4. Savings rules should be expressed as absolutes, not percentages. Does a person making twice as much need to save twice as much? And sometimes, spending money on retraining instead of savings will mean much more money in the long run. I know super-savers who are much poorer because of it, because their income is low, but they won't take the financial risk of rejigging their lives.


  5. Ernie, yes, I personally believe that a person earning twice as much SHOULD save twice as much, because you're not going to magically get used to a lower-income lifestyle just because you're retired. Sure, you could SURVIVE putting away the same amount as a lower-income peer, but you're probably not going to like it when the time comes to spend it. Expect to maintain your current lifestyle when you retire (what you're not spending on work-related expenses will probably end-up going to medical expenses anyway) so that you won't be disappointed.

    I do agree on the retraining thing…though I would suggest that you could find other ways to cashflow furthering your education without sacrificing ALL your savings, like taking on extra work, selling stuff, applying for grants and the like.


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