The Secret of Retirement Savings: You Can’t Make Up for Lost Time

Laura Shin

Fidelity AdvertisementWhen you prioritize a set of tasks, you probably often order them by deadline, right? The things that have to be done today get taken care of first, and the things that have to be done tomorrow go next, and so on.

Given that this system seems to work well for most tasks in our lives, it’s easy to see how people keep putting off saving for retirement. It’s so far off it seems like there will always be time later to work on it.

Another good reason we put it off is that we think it’ll make more sense when we’re making more money. This excuse is seductive because it sounds financially responsible: ”Saving for retirement right now doesn’t make sense for my budget,” you tell yourself.

RELATED: What’s Your (Retirement) Number?

But here’s the truth about saving for retirement: You can’t make up for lost time—no matter what your budget is. Today, we’re going to explain why this is so, and give you practical tips on how to save now. Right now.

Because, simply put, putting off saving for retirement is the worst thing you can do for the rest of your financial life.

Why the ‘Right’ Time Never Comes

Think about when you started your first job after college.

At that time, you might have been overwhelmed by student loan payments or determined to pay off the credit card debt you accumulated in college. Or maybe you were just focused on covering your rent and groceries.

Odds are, retirement—which was four decades away—was pretty low on your priority list. “When someone graduates, they’re so busy celebrating their new employment that they don’t stop to think about retirement benefits through their new job,” says Katie Brewer, a LearnVest Planning Services certified financial planner™.

  • Guest

    Great advice! But now I’m super depressed. As a musician who has made a very, very modest living throughout my career, it has been impossible for me to save for retirement until this year (and I’m over 40!). I intend to keep working forever — but sometimes events in life can alter the best-laid plans. The meager amount I’m able to contribute to my retirement plan seems almost pointless, and I worry about my future.

    • Lisa

      You may feel overwhelmed, perhaps thinking, “That’s twenty years I could have been saving”–but instead of feeling that now it’s pointless and freezing up, think of how much more overwhelmed you’d be twenty years from NOW, if you were looking at FORTY years of no saving instead! Instead, you’re going to be relieved, happy. and proud you starting saving now.

      Like you, I’ve been living modestly, and if you are anything like me then every extra few dollars a month is a reason to celebrate–little things like the difference between pinching pennies at Christmas or feeling comfortable getting your loved ones a gift AND paying the bills. Future-You will be thankful for any amount you saved now, so that you wouldn’t always have to choose between those two things later. Hardly pointless! Every dollar you put into an IRA now is one future you will be grateful for. (And one that will start working and growing–even more to be thankful for!).

      No point regretting the past, as what’s done is done–what you CAN control, right now, is your future. :)

  • LV Guest

    Question, why do you say one should roll over $ from one’s old 401(k) (from a previous company) to the current one? My boyfriend started a new job 8 months ago and hasn’t rolled over his old 401(k). He said he has met the minimum requirement to keep his previous 401(k) open indefinitely. Is there any other reason why he should consolidate his two 401(k)’s?

    • Marie

      My understanding is that you would want to consolidate the accounts for ease of management. Many, many people leave jobs and forget about old retirement accounts, especially if there isn’t much money in them, and never use them.

    • spin

      In general you’re better NOT transferring it to your current company’s retirement account as company’s 401k investment choices are typically limited (though that’s changing). You’re usually better off creating a rollover IRA with the same investment company that handles your company’s 401k. Then when there’s four 401Ks you can merge them into one account (like Marie noted for easier management).

      You may be better off transferring it if you think you would need to take out a loan from your 401k. Companies that allow that have upper limits ($100,000) and shorter payback periods (5 years). That said I’m not sure if a company would allow you borrow money that wasn’t deposited through them.

    • LearnVestJacqui

      Hi there,

      I think this article can answer you question about whether or not a 401(k) rollover is necessary or preferable:

      Thank you!

  • HL

    I generally agree with the premise of this article, but people should realize that a 7% per year growth assumption is pretty aggressive and might not hold true each year. I started saving for retirement at my first job post-college, even though I couldn’t save much. When I left, my account was worth about $4300. I then spent three years in law school and didn’t have any extra money to add to my IRA. When I graduated, guess how much my IRA was worth — $4100. Not only did I “lose money” (it has since risen quite a bit, so nothing was REALLY lost) but I got absolutely NO benefit of compounding interest during those years. I could have kept the money in a savings account and then invested the lump sum later with no overall effect on my long-term balance. I certainly don’t regret scrimping to put the money aside early, and it is now behaving more like what is described in the article, but it kind of drives me crazy when “money experts” present growth predictions as solid fact when it is really utterly dependent on the state of the markets.

  • WakeUpPeople

    How can you tell people that they will only need to save around 5K for 40years in order to reach a million??

    Calculations I’ve done, that assume at least 4% returns from the market, have me putting in AT LEAST 12K a year. Do we really believe the market will be returning 7%-10%? I sure don’t.

    I am definitely scared for the future. No pensions. and at best slashed social security benefits.

  • Umi Wang

    Here’s the path to retire on your own terms, in 7 steps:

    1) Pay off your debts as fast as you possibly can. If this means living in a crappy studio apartment and eating ramen everyday for a couple of years, do it. If you want to buy a car, get a reliable beater. Get insurance for $25/month from Insurance Panda (4AutoInsuranceQuote is also good). Forget about buying a house until your debts are paid off.

    2) Once you are out of debt, stay out of debt. The only exception to this rule is a vehicle and a house. If you want to get a nicer car, buy used and be able to pay it off in a year or 2.

    3) If you are going to stay in the same spot for at least 10 years, buy a house, preferably with at least a little bit of usable land. An acre is good, 5 acres is better. Take the amount you are pre-approved for and cut it in half – that’s how much you should spend on a house. Come to the table with at least 20% down and make a couple of extra mortgage payments every year. If you’re going to be transferred or relocate every 5 years, forget about buying a house and rent instead.

    4) Develop multiple revenue streams. Do contract work. Start a business on the side. Invest in a business as a silent partner. Raise chickens, breed dogs or grow apples. Build websites. Buy and sell antiques. Acquire rental property. Sell something that generates residual income. Learn to play the currency markets or trade stocks. Do whatever you can to generate income from multiple sources.

    5) Grow these multiple revenue streams to the point that they generate enough consistent and reliable cash flow to replace your current income.

    6) Make as much as you can. Save as much as you can. Give away as much as you can.

    7) Retire!- the sooner, the better. Be sure you understand that “retirement” doesn’t necessarily mean you stop working, it just means having the freedom to do what you want to do, when you want to do it.

    Don’t be foolish and fall into the trap of trying to measure your wealth by the value of your assets. Markets change. Valuations fluctuate. Instead, measure your wealth by the amount of cash flow your assets consistently generate.

    • kr

      As a dog lover and advocate of rescue first and spay and neuter I can’t believe you would suggest “breeding” dogs for profit in this dog-is-an-accessory and mutts labeled “designer” (HELLO puppy MILLS) are dumped into shelters when the trends change and the dog stops being fun and cute. One can eat and sell the eggs then eat the chicken itself when it no longer produces.
      The rest of your comment is excellent otherwise.

  • Patrick

    It seems your article is based on the assumption you can’t really increase your returns beyond 7% and I tend to disagree with this assumption. I’ve been able to, with conservative trading, boost my returns into the double digits with options trading. It’s a wonderful way to not only control what you invest in, but better manage the risk you accept in the market as well. I would highly suggest anyone running into the “time crunch” problem look into learning options trading. It’s an awesome feeling to put a two-digit “annual return” number into the retirement calculator!

  • ChristaJocelyn

    Calculations I have done. I am definitely scared for the future. No pensions. and at best slashed social security benefits.