Retirement savings are my number one savings priority at the moment. It’s fairly unusual that someone my age and in the freelance world is so focused on retirement. Most 20-somethings don’t think about retirement because it seems so far away, and most freelancers don’t think about it because it’s hard to save for as a 1099 employee.
It has been ever since I finished paying off my student loan debt. I opened a Traditional IRA at age 26, and have maxed it out for the last three years. I also have a solo 401k, and a Roth IRA.
According to a 2016 survey by Transamerican Center for Retirement Studies, the average twentysomething has an estimated $16,000 saved for retirement. The executive director of the National Institute on Retirement Security, Diane Oakley, estimates 40% percent of the American workforce have nothing saved for retirement.
That’s scary to think about. With shrinking pensions and Social Security an unknown for the Millennial generation, the burden is on us to save for our retirement. For me, retirement savings is the first step to growing my wealth. It’s a way to grow my wealth, build a secure future, and live the life I want for my entire life.
I call it ‘gifting your future self.’ By saving my money now, I am gifting future Kara financial stability. Because guess what? The things I spend my money on now- food, housing, travel- all those things will still be costs when I’m not working. I will depend on my savings to afford the lifestyle I want in the future.
By shaping saving like this, I am avoiding the two most common pitfalls people face with retirement. Lots of people see retirement savings in two ways: something they can always get to later or something that detracts from enjoying themselves today.
I’ll Do it Later Syndrome
I am a champion procrastinator. I leave things until the last minute all the damn time. I’m the person who packs for her trip the morning she’s supposed to catch the flight.
If it made any sense at all, I would 100% procrastinate my retirement savings. But it doesn’t. By putting off saving, all I’m doing is hurting myself. I’d miss out on compound interest. There would be more pressure to save later in my life. I’d have to save more money later, to make up for the time lost now.
That sounds harder than simply setting aside money each month right now. I’m all about taking the easy route. And the truth is: it’s easier to save small amounts of money early on when it come to retirement. Take a look at this chart and see the power of compound interest. Saving early is what gets you to a comfortable retirement.
This is the one area of my life I can’t procrastinate in. Each January I choose an amount to save for retirement that’s doable, but a bit of a stretch. Then each month I set aside money specifically for retirement. First I save it in a regular savings account, and each time it hits $1000, I transfer it to my Vanguard account. Bing bang boom- saving for retirement.
Saving Now Doesn’t Destroy Your Fun
Dear people who think that saving detracts from your fun: you’re wrong.
I see where you’re coming from: saving $100 a month for retirement means you’ve got $100 less for concerts, food, or whatever you spend your money on. I understand what you’re saying.
The thing is, saving now just ensures that you continue to have fun throughout your whole life. Yes, maybe you need to skip dinner out once a week to ensure you hit that $100, but think of it this way. That hundred dollars is going to start earning interest, and in 25 years, you’ll be able to afford 10 meals out with that same Benjamin.
Saving now means that you’re able to keep the party going for the next couple of decades. That is the true essence of fun- being able to pursue your passions for your entire life.
Plus, with the right budget, you can include fun money in your monthly expenses. So now you’ve got enough to do the things you want to do and to gift your future self.
Retirement savings don’t have to be your number one priority. They just have to be somewhere on the list. Start socking away money today and gift your future self a financially sounds future.