I was talking to Lisa one day (we talk a lot), and she said, “Do you ever feel like you’re the only one saving for retirement?” And, it’s true. It doesn’t seem to be a high-priority for many people our age (late-ish twenties). Well, friends, that is not the money hip mama way, and let me tell you why.
Time is your biggest ally. You may not have tons of money to invest while you’re young, but you do have lots of time for it to work for you. For example, say you saved $275 a month towards your retirement starting at age 25. If you get a 10-percent return (completely reasonable given our time frame) and you’ll have over $1 million at age 60. Cool, eh? But say you start saving 15 years later, at age 40. If you want $1 million by the time you’re 60 you’re going to need to save around $1,320 a month given the same rate of return. Yikes. Try playing around with this cool calculator from bankrate.com to see just how HUGE an impact starting early makes.
You say, “That’s great, but I don’t have any money.” We say, “Just open an account. Do it today.” People always seem to think that they need a bunch of extra cash floating around to have a retirement account. Not true. Just the mere act of opening an account is a huge step, regardless of how much money is in it. Here’s what we want you to do:
- Open up a rainy day fund—because it’ll save your bacon when you need it and give you peace of mind the days you don’t. We like CapitalOne 360. Shoot to get first $1,000 at minimum. Then aim for enough to cover three to six months of expenses (gold star if you get a year’s worth of expenses in there). Set up an automatic monthly deposit with an amount that fits into your budget.
- Open up a Roth IRA. (More on what a Roth account is here.) Mine is with Fidelity. You don’t get a tax deduction for contributing to a Roth (meaning you use “after-tax dollars” to contribute to it), so you don’t have to pay tax on the distributions. Plus, it grows in your account tax free. Set up an automatic monthly deposit with an amount that fits into your budget (15 percent if you can swing it).
- Open a 529 savings plan. Yay, you just had a baby! Time to start saving for college! (Trust me, it’s not crazy—you’ll thank us when they graduate high school.) Super easy to open. Mine is also with Fidelity. Your savings grow tax-free and the distributions are also tax free as long as you use them for valid education expenses. You can also change the beneficiary to another child. Use the calculator to get an idea of how much you’ll need to save, and look at your budget to see what is feasible. But always remember, anything is better than nothing. And, of course, set up an automatic deposit.
Check out our saving and investing tutorial if you want a refresher course on what all the different kinds of investments you can make are.