Why I’m passionate about saving for retirement

June 28, 2007

My friend celebrated her new employment with a company for whom she’d been temping the last few months. She now receives benefits, and my first question to my close friends with good jobs is, “Do they match?” If you feel this is too personal or are offended talking about finances, please let me know, and I’ll drop the subject. But, the more I ask this question the more I realize how few people take advantage of the situation they’re in. My friend didn’t understand what a 401K was, and after I explained it in a general-sense, she continued to distrust it, asking if it was really her money or if it was like Social Security. It just shocked me, and more-so it saddened me.

I care about my friends. Information about investing and saving is not hard to come by or hard to understand, but it’s never been introduced to us as a need. I want my friends to know what their options are, so they’re not in the dark and working until they’re 75. My dad’s in a precarious position with his retirement fund, and I see the worry in his face when we talk about it. He’ll definitely be working past 65, and he pulls in a six-figure income. Doesn’t add up, right? I don’t want this for the people I know.

I want my friends to retire at a normal age and not worry that they’ll run out of savings. I want them to feel confident that they can become financially stable even if they don’t really make a whole lot. If your company has matching, take advantage of it now, because it’s basically like earning double interest on your money. 10% is great, but after matching, 20% will rock your retirement savings and your peace-of-mind. To put it another way, it saves you the first 10 years of compounding, because you’ve already doubled your money that first time.

If that last paragraph confused you, don’t worry – here are the facts. Hypothetically, you put away $2000 this year. Assuming you’re 25, your money will compound more than 4 times in the stock market at 10%. I calculate that after 40 years at 10% that original $2000 you sacrificed this year plus the $2000 you’re matched will be worth $90,518.11. Not too shabby. This means that if you saved like this for the first eleven years out of college, you’d be a millionaire when you retire.

For those of us that don’t have matching, don’t despair – that money will still be worth $45,259.26! Ask me if you want more resources or have questions :-).

Added: As I finished this post, my Dad walked in, and we started talking about the rates of return on his mutual funds. I’ll have to write another post confirming or dis-confirming the assumption that you will earn 10% on your money. Regardless, start saving now!

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2 Responses to “Why I’m passionate about saving for retirement”

  1. Brian Says:

    I think 10% is a pretty aggressive target, but one that’s definitely possible. I was looking at 10 year average annual returns from Vanguard (I know I’m biased), and their index funds were hitting between 5% and 10%, with most landing in the 8%. Other more focused ones were anywhere between 3% and 20%, with a lot 10%+. And remember, those numbers include the recession following 9/11, so I think those are somewhat safe (knock on wood) bets.

    So, even using the safer index funds, you should land a good return of close to 10%. I think you’re right.

  2. kingspray Says:

    There you have it people – factual evidence. I trust Brian with my life. (I do)


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