Last month MP Dunleavy wrote an interesting article called “How $10 could save your retirement.” Every dollar you save now will be worth $16 in 36 years, the approximate time you may be retiring. So every dollar spent could be worth a lot! According to the investment rule of 72 and assuming a high 8% return, your money could double every 9 years for retirement. Nice. I gotta say I love that idea.
Well according to a savings calculator, if you saved $10/week for 30 years, you’d end up with $60k assuming a 8% return. Doesn’t sound like much, but it’s better than nothing saved right? If you save only $10/month for 30 years you’d have $14k. Sounds like chump change?
Well it is in the grand scheme of things, but consider if you didn’t save it, you’d have that much less to live on. MP suggests that if you save $100/month for 30 years @ 8%, you’d have $140k extra to retire with. That is nothing to sneeze at and a hefty sum.
She gives a list of ways to save $10/month including cutting your grocery bill, electricity, eating out, snacks, driving less, premium cable, paper products, etc.
Is it worth it? My take is I do all these things in general, so cutting isn’t going to happen. I don’t eat out, don’t buy snacks, try to watch what I eat (weight issues), etc. So cutting isn’t necessarily easy.
I think it’s more the mindset. That you should be saving something for retirement rather than nothing. It’s easy to prioritize everything else as important but leave retirement as “I can only do it when I can save a substantial amount.” The reality is that it’s just important to save anything for retirement period. Every dollar counts, even just $10. It’s more than you would have had if you didn’t save at all.
I wonder if people don’t save for retirement because they don’t feel that it’s worth saving $5 or $10 month. But they should because getting into the habit and watching the balances grow is addicting.
In late 2005 we started saving for retirement. We saved I believe $8k into a Roth IRA for the two of us because my DH finally qualified. I think we previously had saved $6k or 3 years worth of Roth IRA for me but it was down to $2k after the market crash. Then we got serious with a 401k available, IRAs, and a real income we began maxing it all out. Today in 2010 we started the year with $135k in retirement savings. Not bad for 4 years of dedicated savings.
Yes we got a late start, and yes we should have more. But at least we’re moving towards a goal. I think that MP has a point. It’s about changing your habits and getting used to saving for retirement, whether it’s $10/month, $100/month, or more, it’s worth doing.
I only wish we had started sooner.
5 responses so far ↓
1 Kristy // Jan 25, 2010 at 10:25 am
I actually have friends that plan on inheriting money and that’s what they will retire on. Not only that, but they plan on asking their grandma to pay off their mortgage. They constantly say things like, “It wouldn’t be so bad if we didn’t have a mortgage.”
Well, no shit. Go rent then. I just can’t believe that people think like that. Sometimes, I can’t believe that we are really friends with them!
2 Lynn // Jan 25, 2010 at 2:16 pm
My goal this year is to try and max out my husbands 401K. We put in just over 11K last year, up from 8K the previous year. We have over 18K in daycare costs so that is really what is keeping us from maxing it out – which is terrible I know. I don’t want that to be an excuse so I am going to try my hardest to max it out this year. I am inching up the % every month to see where our breaking point is. I started out in January 2% higher that in December so that is good. Plus a 2-3% raise in March should help too.
We don’t have as much in our retirement as you (about 110K not including pensions) and my husband is turning 40 tomorrow…we are making retirement a priority over the college savings as we will ramp those up once the girls are in school and no longer in daycare.
3 Katie // Jan 26, 2010 at 8:56 am
It scares me a little when I realize how many people aren’t saving for retirement. With all the freaking out over Social Security potentially running out of funds, you would think more people would be worried. The best time to start saving $10 would be in your 20’s, but that’s the time most people are worried about everything but retirement.
I admit our family doesn’t save as much as we should, but we still put a big chunk away in a 401k (to the point where Mr’s job stops matching) and we’re aggressively paying down our mortgage so housing costs won’t be an issue.
4 Mike Z // Jan 26, 2010 at 1:16 pm
Yeah – but if you earn 8%, you really aren’t earning 8%. You need to take into consideration taxes on that return (if not in IRA) plus you need to take into consideration inflation.
Also – where on earth are you going to get an 8% annual return? It’s nearly impossible to get if you look at the long-term history of the stock market and take into consideration that most people underperform the index.
5 LAL // Feb 8, 2010 at 5:38 pm
Kristy, I don’t understand either how people count on inheriting money. Unless it’s already been given to them in the form of a downpayment on a home or something…I mean what if your parents or grandparents need it for medical care before death? Which everyone knows is super expensive?
Lynn, you have pensions, which neither of us have. I think that should be included in your retirement planning.
Katie, I agree that people don’t worry until it’s too late. I think that getting an early start is important. But so is paying off debt.
Mike, I don’t know. I’m not really fortunate enough to be investing in taxable accounts right now.
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