So it occurred to me recently that I’m going to turn 30 soon. I’m not depressed about it; in fact, I kind of look forward to an escape from the chaos of my 20s. But it’s still one of those milestones that makes me look at my life and wonder, Am I where I should be? Have I done what I could to prepare for the future?
I’ll be the first to admit that I have NOT made the best decisions in life, especially where money is concerned. I’ve been guilty of thinking of retirement as one of those things I’ll worry about later, something for older people to deal with. It’s not that I didn’t save for retirement – I did, starting with my very first job out of grad school. But that doesn’t mean I did it the way I should have. Let’s review:
- Employer One: Contributed 6% of my pre-tax income to a 401(k) with a 3% match (the max they offered and you had to contribute the 6% to get it). Rolled it into my 401(k) at Job #2, minus the employer match because I wasn’t vested.
- Employer Two: Contributed 10% of my pre-tax income to a 401(k) with 3% match. Cashed it out when I left and wasted the money on random crap.
- Employer Three: Contributed something like 5.3% of my pre-tax income to a state pension plan because I was a state employee and it was required. Also threw a measly $20 a paycheck into a separate 401(k). Cashed all of it out when I left and wasted the money on random crap.
- Employer Four: No employer match offered on their crappy 403(b). Saved zilch for the first two years, then opened a Roth IRA on my own in my final year there. Saved about $2600.
- Self-employment (current): Still moving along with the Roth, but I suck and I only saved a little over $1000 this year. At least I haven’t cashed it out, right? *crickets*
Where I Am vs. Where I Should Be
As of right now, the balance in my IRA is a little over $4,000. For someone who is nearly 30 and has had the account for 2 years, that’s pathetic and sad. If I continue my average contribution of $2000 a year until age 70 (assuming a 5% rate of return), I’ll be lucky to live on like $20,000 a year in retirement. Yeah, that’s no fun at all. Forbes says if I’m starting at 30 (which I basically am), I need to save 21.4% of my income to make up for the years I missed. Also no fun, and it’s going to be extremely difficult to do.
According to Investopedia’s guide to retirement planning for 30-somethings, I’m at least taking a positive step by checking my progress, but I know I’m far from where I should be. As the guide mentions, my financial responsibilities will only increase from here on out – it’s not like I’m going to magically find free money as I grow older. So now what?
The Dreaded B-Word
No one likes to budget. It’s time-consuming, it involves math, and a budget forces me to say no when I really want to say yes. However, I’ve learned the hard way that a budget is completely necessary, both for me personally (especially as a single mom) and for my business.
The only way I’m going to catch up from all the years I didn’t save for retirement is by budgeting at least 20% of my income to go to my Roth IRA. Considering the fact that I already take 20% away for taxes, that means I have to live on 60% of my income. Oh, and let’s remember that I’m self-employed with a fluctuating income AND I basically only pay myself enough for the necessities.
I have two choices: I can either pay myself more and put it directly in my IRA, or I can continue throwing in piddly bits of money and exist on cat food when I get old. And when I think of it that way, there really isn’t much choice involved anymore.
Save For Retirement, Kids!
If there’s one thing you can learn from all this, it’s that you should start saving for retirement. Like right now. Don’t depend on Social Security to be there; it might, but isn’t it better to think of it as a bonus instead of relying on it and being disappointed?
Even if you can only save a little, there’s nothing better you can do for your future than put money away. Whether you’re in your 20s or 30s or any other age, it’s imperative that you sit down with your budget, crunch some numbers, and get ready to retire someday. If you’re like me, you’d rather it be sooner than later, but that’s only possible if you plan ahead.