3 Reasons to Start Saving for Retirement Now and 5 Steps to Get Going

3 reasons to Start Saving for Retirement
3 Reasons to Start Saving for Retirement Now and 5 Steps to Get Going

By David Bakke

Saving for retirement is a daunting task to many people. To some, it may seem so far off that it warrants less attention than matters at hand. Others may feel they're starting too late in the game and can achieve little with their efforts. Well, I'm here to tell you that virtually anyone, anytime, can and should begin saving for retirement. Regardless of your knowledge of investing, and whether or not you have significant funds to devote to your savings, you can still make an impact in your future financial situation.

Reasons to Start Saving Now

Eventually, you're going to have to hang it up and leave your career. When you do, you're going to want as much money as possible to enjoy your golden years. If you're starting out late, it doesn't matter why. All that matters is that you get started today.

1. Because No One Else Is Going to Do it For You

Unless you come from a moneyed family and your trust fund is financing your retirement, the responsibility to plan it lies with you alone. You owe it not only to yourself, but to your kids, to effectively save for retirement so you're not a burden once you reach your sunset years.

2. The Magic of Compound Interest

To understand the power of saving for retirement at a young age, you have to understand the concept of compound interest. Supposing you start saving at age 20 and plan on retiring at 65, if your overall goal is $500,000, you'd need to set aside $2,350 each year, based on an annual return of 6%. If you wait until age 35 to begin saving, your yearly contribution nearly triples to $6,325. Whether you're younger or older, start contributing to a retirement fund as soon as possible to maximize your savings potential.
the magic of compound interest

3. The Uncertain Future of Government Programs

Both Medicare and Social Security are struggling, and some experts predict that Social Security may start running out of money by the year 2033, and Medicare by 2026. Don't simply assume these programs are going to be fully available to you in retirement. Prepare for any contingencies now.

How to Do It

Saving for retirement isn't rocket science. It's math. And basic math, at that. Cut your expenses until you have a monthly surplus, and then educate yourself as to the best places to invest.

Follow these five steps to get going:

1. Institute a Personal Budget

Write out all your monthly expenses on one side of a page and your income on the other. If you're currently making more than you're spending, you can devote that surplus to your retirement funds. If not, you need to take a closer look at your expenditures and start making some cuts.

2. Reduce Monthly Bills

Bundle your cable TV, cell phone, and Internet services under a single plan or cut things you don't really use. Look for hidden fees on all your monthly bills, and if you find any, contact the provider to get them eliminated. Switch to the competition whenever you see a better deal (as long as you're not under contract) and pay your bills with a credit card that offers cash back to increase your savings.

3. Save on Grocery Shopping

It may seem passé, but clipping coupons can save you significant money on your groceries. Buy several copies of the Sunday paper to maximize the effect. Organize your coupons in a filing system so you're sure to redeem them before they expire and shop on the days your grocer doubles their value to save even more.

4. Reduce Your Gas Costs

Check out the website GasBuddy to save on your fuel costs. Input your zip code and you can find all the cheapest gas stations in your area. Combine trips to the cleaners, supermarket, and pharmacy on either side of your work commute and you're going to find yourself spending a lot less on fuel. Keep your car properly maintained by following your owner's manual guidelines as well.

If you’re currently making more than you’re spending, you can devote that surplus to your retirement funds. If not, you need to take a closer look at your expenditures and start making some cuts.

5. Prioritize Personal Purchases

Personal purchases fall under one of two categories: needs and wants. And it's easy to distinguish which is which. If you don't absolutely need something to survive, then it's a want, plain and simple. If you apply this distinction to your spending habits, you may find that the majority of your personal purchases are wants. Define the two objectively and hold off on your wants as much as possible.

Final Thoughts

Once you've built up some funds, start off by devoting them to your employer-based 401K program. Choose the highest possible percentage that your budget can afford. If that's not an option, open an IRA. Both the Roth and Traditional IRA have their advantages and disadvantages, so research them thoroughly and decide which option is best for you. Saving for retirement is serious business, and the sooner you get started, the better off you're going to be.

What are you doing to save for retirement?

David Bakke is a contributor for Money Crashers. He shares career advice, tips for personal development and self improvement, and strategies for building wealth and success.


  • Reply August 7, 2013


    where are you getting 6% annual interest from?? I’d say 2% is closer to the mark for a long time yet…

    • Reply August 7, 2013


      Average returns for a diversified portfolio over a long time period are 6% or above.

      • Reply August 8, 2013


        is that as they currently stand, or over the past? I can well believe that for the past, but my point is that unless you take on more risk, we’re now in a low interest rate world, and probably will be at least for a couple of decades. Even Portugese 10 year bonds are only at 7.5% at the moment…

        • Reply February 5, 2014


          Certainly current interest rates are lower than 6%, but I assume the author was suggesting a portfolio with a significant portion in equity. Even a 60/40 (equity to fixed income) portfolio in indexed investments, which for a 20 or 35 year old errs on the side of TOO conservative, can expect to outperform 6% over the long term (and we are saving for retirement here).

  • Reply August 7, 2013


    Also, depending upon where you live – saving to buy a house may be more important than retirement saving. Renting is effectively consuming rather than investing, so if it’s taking you longer to find a deposit to buy a house because you’re saving for retirement, it’s probably better to switch to deposit saving. Equally, the rate of interest on your mortgage will be WAY higher than the rate of interest on your savings – so better to plough excess cash into paying off your mortgage early. And if you live in a buoyant local economy, then the investment in your house will increase notably as your house price increases. Of course you shouldn’t bet your whole future on your house price – but I live in London, where if there’s a house price crash it probably means the end of the world is also happening. It also means I’ll probably need at least a £30,000 (c. $45,000 US) deposit for a 90% loan-to-value mortgage. I imagine similar things will apply for other major cities around the world…

    • Reply August 7, 2013

      James Winter

      It’s a total myth that its always financially prudent to buy a home. After you factor in HOA fees, private mortgage insurance, property taxes, home repairs and maintenance etc… it isn’t a guarantee that you’ll come out ahead.

      • Reply August 8, 2013


        Myth that it’s ALWAYS financially prudent to buy a home – totally agree. Definitely depends on individual circumstances and of course location – it’s a risk like any other investment.

  • Reply August 7, 2013


    Although I note you can get a 4 bedroom house in Detroit for less than the cost of a deposit in London, so obviously my advice is not applicable everywhere!

    • Reply August 7, 2013


      A lot of those houses aren’t in the best areas and they have a lot of back taxes on them. I’ve seen houses go for about $500. The ones in the better areas of Detroit are actually getting quite expensive (comparatively).

  • Reply August 7, 2013

    Justin H.

    As of right now my interest rate is about 14% on my 401(K), so I would say that 6% is a reasonable average. Of course as I get older I’ll start shifting my investment strategy away from stocks and onto something more stable.

  • Reply August 7, 2013

    Judson M

    Sadly these days 6% comes with a lot more risk than 5-10 years ago. As a young man saving for retirement, I am willing to take significantly more risk for the time being as compared to the future.

    If only we lived in the days where you could get 6% in a money market account. 2% is barely attainable these days from a reputable bank and good luck getting over 1% from a normal savings.

    Might also want to mention buying into employer match 401k programs, if they are offered. Max out the match because if you don’t its throwing away free money!!

    • Reply August 10, 2013


      Totally agree with the employer match part. My company matches up to 8%, I feel like I have to do that or I’m leaving money on the table.

  • Reply August 7, 2013


    I feel as if retirement is slightly overrated. Not saying people shouldn’t save for it, but how may people really plan to retire at 65ish. especially the generation of the late 80’s and on, were probably going to be working past the typical retirement age if we really love our job especially since most would get bored with just getting paid to do nothing. And by the time we do retire, we will probably closer to death that we wouldn’t be able to use the money we saved, in effect wasting it. Again, not saying we shouldn’t save, but I just feel with times changing, the general idea of retirement needs to shift. Those who are 65 now were born in 1953! Most who read this blog were probably born in 1985 or later…

  • Reply August 12, 2013

    Todd @ Fearless Men

    I’ve been hearing to start putting away $2k a year at 20 since I was 20. And I always found that a bit discouraging as there was no way I could do that until I got to my mid-20s. Do people actually expect a university student to pull that off?

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