Wednesday, March 9, 2011

Baby-stepping toward retirement

Although I sometimes forgot my exact age (37), I do know that I am officially in my "late 30s." That means I only have about 30 more years of work to put in before I can retire. That seems like a lot of years, 30. And so many things will and could happen. Some of these variables I'm prepared for, others I am not.

But one thing I am sure of--I am NOT financially prepared for the end of my occupational journey. I remember two of my friends talking during law school about their retirement plans. At the time, the only money I had "saved" was split between what was in my pocket and what (little) happened to be lingering in my checking account. I quickly left the room to avoid all out panic during their discussion.

I'd like to think that the 6.2% of my paycheck that the government has taken all these years will be earning gobs of interest over my working life, compounding as it waits to join me in my golden years. Instead, that money is sent to various "genarians" about 10 minutes after it arrives at the Social Security Adiminstration. And while my funds do earn interest, it's at rate less than 2%. [For 2011, the social security tax is 4.2% for most of us.] It seems unlikely that Uncle Sam will be supporting me in my later years.

So, it's up to me to plan. I am fortunate that my company has a 401(k) plan. I am even more fortunate that they will match my contributions of up to 6% at a 50% rate. (For example, if I put in 4%, they'll match it with 2%.) I started my current job at the age of 31, which experts say is late to start saving for retirement. For the first year or so, I couldn't afford to put money in my 401(k). Financial experts, accountants and dads across the country, however, will be appalled if they learn that you are not maxing out what your company will match. "It's free money!" they will say. But when it's a choice between paying the electric bill today so that you have light next week and socking away dollars in your retirement account so that you can have light 30 years from now, well, next week wins by a landslide.

I do wish I had been more financially savvy and responsible in my 20s. (Who doesn't regret some of the decisions they made in their 20s?? I also wish I'd eaten less junk food and drank less rum.) But now I'm a grown-up, home-owning, leafy greens-eating 37 years old. And I need to buckle down and save for the future. So, today I decided that I'll be upping my 401(k) contributions. Eventually, I should probably learn about IRAs and mutual funds. But right now, I'm happy with my baby steps.


  1. Well, I know I wasn't one of the law school friends because my retirement plan is "win the lottery". I had a professor in college that had a 5 year plan - starting at 16, put $1000 a year in an IRA and you'll have a million dollars when you retire. Well, considering I was 21 at the time, I was already hosed. I also do not take full advantage of my company's 401(k) match, but I can't afford it right now. My company does provide me a pension that is company paid for and I earn interest and years-of-service credit - that's completely free money and at least it is something. I need to start looking at other things, but I need to take baby steps too.

  2. Yeah, I've had a couple friends/coworkers who seem horrifed that I'm not up to the full 6% in my 401(k). I guess one of the benefits of being single and childless is that I don't have to shell out for daycare, diapers, and college tuition. At least I'm hoping that means I'll have a chance to catch up ... so I won't spend my 80s subsisting on cat food.

  3. One thing that I did early on in my career was to increase my 401k contributions by the raise amount every time I received a raise. This did several things - increased my 401k (and matching) contributions, kept additionl money out of my pockets (I didn't miss it because I never had it) and kept my taxable income lower (401k contributions are not included as taxable income to the IRS (form 1040)).

  4. That was very wise! I'm hoping to do something similar going forward.

  5. Watching Suze Orman has put me into a despression - apparently even if you have $750,000 in your 401K, no debt, $40,000 in cash and savings and are turning 60, retirement is NOT an option. Suze told her caller that because her social security did not kick in yet and because the income tax she would have to pay on her 401K withdrawls - that she would run out of money before she turned 75!! Could welfare be a better, less stress-filled way of life??

  6. Seriously scary. And with the state of Social Security, we have to assume that won't be kicking in as much as it does for retirees today. It's sad when you start to panic about 30 years from now...