Stop making excuses for why you “can’t” save $25,000 for retirement by age 30

My 30 Financial Milestones You Need To Hit By Age 30 post recently went viral. It was met with a tremendously positive response, but there were a few naysayers in the mix. They seemed to congregate around one point of contention:

#5 – Have at least $25,000 saved for retirement by age 30.

Even the Globe & Mail’s Rob Carrick suggested this might be “unrealistic”. He wasn’t alone. Many people insisted that whether or not you can hit this target depends on your circumstances: what you studied in university, how much debt you have, whether you have to support yourself, when you started saving, blah blah blah.

Before we continue, I want to point something out. My original suggestion was that you actually have the equivalent of one year’s salary saved for retirement by age 30 — I was low-balling it with the suggestion of $25,000! In other words, I thought I was cutting you guys some slack, not making an unattainable target. Geez! When I push my readership for big goals or flex some of my financial muscles, I’m occasionally met with some disgruntled protests that I must have had some easy ride and therefore can’t sympathize with the average saver. Money After Graduation readers that have been around for awhile already know this is not the case, but for those with doubts let’s do this…

Bridget’s Brief Financial History 

  • I took time off between high school and university during which I did a whole lot of nothing and saved $0.
  • I have lived on my own, paying rent without any parental help since age 18.
  • My cheapest rent was $400/mo ten years ago and it’s steadily increased since then. I now pay $1,200/mo to live in Calgary, Alberta – the 4th most expensive city in Canada.
  • My parents did not pay a single penny towards my university tuition.
  • I will have spent over $75,000 on university tuition, fees, and books by April next year.
  • I paid off over $20,000 in student loans from my Bachelors degree in 22 months.
  • To date, I’ve only worked for 2 full-time years in a professional job in my 20′s.
  • I didn’t start saving for retirement until age 25 (I am now 28).
  • When I left my professional job to go back to school full-time, I forfeited my employer-match on my retirement contributions, a “loss” of over $10,000.

But what’s the most important point about my journey?

I have over $25,000 saved for retirement

(and 2 years to spare!)

So what I really want to say is there will be no whining about your debt load, lack of parental help, cost of housing, lack of years in the workforce, late start on saving, etc etc going forward. You will not get any sympathy from me. This is because sympathy doesn’t make dollars, and I’m assuming you’re here because you want money, not hugs. Let’s get started!

How To Save $25,000 For Retirement By Age 30

Step 1: Stop Whining. Seriously, stop. Like in my posts on how to save six-figures in seven years or increase your net worth by $25,000 annually, I will not indulge the reasons you can’t (aka. don’t want to) save $25,000 by age 30. The only real reason you might not be able to save $25,000 by age 30 is you are aged 31. No other excuses accepted.

Step 2: Do the math. You will earn between $300,000 and $400,000 (or more!) during your 20′s — and you’re telling me you can’t save less than 10% of that? Boo! If you start at age 20, even if you make a small salary you only need to save 6% of your income to bank $25,000 for retirement by age 30.

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chart assumes student is working part time at ages 20 & 21 and thus has a reduced income! Salary increases by 3% annually assuming regular, small raises.

If you don’t start saving at 20 then you have to save more when you do start! Sucks? Too bad, that’s math. If you’re a late bloomer like me and don’t start saving until age 25, you might have to save 10% of your income to reach $25,000:

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a late bloomer saver doesn’t put anything aside until age 25, at which point they start saving 10% of their income. Salary and salary increases are the same as the previous example.

Maybe now you can see how I made it to the $25,000 mark despite getting a late start. At one point I was dumping over $500/mo into my retirement accounts — talk about playing catch up! Which brings me to my next piece of advice…

Step 3. Get started ASAP! This is an urgent, please-begin-yesterday matter. Why? Because assuming you can achieve an annual return of at least 5%, every dollar you put away now is worth $7 at retirement 40 years from now.

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So next time you’re complaining that your part-time job is only paying you $10/hr, remind yourself that that is actually $70/hr for your 65-year-old self. Are you seeing why this is so important now? If you manage to bank the full $25,000 by age 30, you’ve actually saved $176,000 for retirement.

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Step 4. Manage your assets. If you can score every 1% higher average rate of return, that final number at retirement will soar above a quarter of a million dollars. Is $25,000 really looking like it’s not worth the effort now? The most important components of managing your assets are: 1) investing for the long-term (this means no crazy day-trading or chasing after “hot” stocks), 2) diversifying your savings. Try keeping some of your retirement in safe places like cash and bonds, some in moderate risk investments like mutual funds and dividend stocks, and the rest in growth stocks and ETFs and 3) NEVER WITHDRAWING THE MONEY. In Canada, you’re allowed to borrow from your RRSP for things like a down-payment on a home or to go back to school. This is a quick way to undo all your hard work! Do not eviscerate your RRSP to buy a home or pay tuition.

Where can you get the money to contribute to your retirement accounts in order to reach the monthly and annual contributions required to reach $25,000 by age 30?

  • work extra hours or at a part-time job.
  • ask for a raise.
  • take advantage of employer retirement plans or other benefits if available.
  • leverage a hobby or skill into something paid, like freelance writing or tutoring.
  • sell clothing, books, or electronics that you no longer need.
  • skip upgrading your phone/computer every year and hold on to your old technology for 3, 4, or 5+ years.
  • cut out a sinful expense that’s hurting your body and your wallet (ie. cigarettes or alcohol)
  • save instead of spend cash windfalls like an inheritance, graduation gift money, or income tax refunds.
  • skip an annual vacation.
  • put off a major purchase like a car, downpayment on a home, or a wedding for another year (or two!)
  • have 1-2 beers on Friday/Saturday nights instead of 3-4.
  • move to a smaller, cheaper apartment or get a roommate.
  • maximize rewards points programs so you spend less of your own money on things you need.

There’s so many ways!! Which is why I know YOU CAN DO THIS! Do it for the $176,000! Do it so you don’t have to eat cat food or live in a box when you’re old. You’re going to be of the wealthy in your old age, there’s luxury cruises and gambling in Vegas waiting for you, so start stashing cash for that fun!

Happy saving!

How much should you have saved for retirement by age 30?

I saw a post of the same title in my twitter feed last week, but when I went back to read it, I couldn’t find it again so my apologies to the author, I’m sure you did a much better job than me. In any case, you got me wondering:

How much should you have saved for retirement by age 30?

At 27, my retirement nest egg is somewhere in the neighbourhood of $20,000. If you add in my TFSA (and I don’t, because I might spend that on other stuff) it’s even higher. I started saving at 25, which is early or late depending who you talk to in the personal finance community. I started slowly, but this year I’m on some kind of retirement-saving bender because the stats about how little people save for their retirement really freak me out. Essentially very few people save, and those that do aren’t very good at it. I don’t know how anyone in their 40′s sleeps at night with $10,000 or less in the bank, but they probably have a higher pain tolerance than I do, or considerably less FOMO. I know that if I want to maintain my groovy lifestyle into my 70s and 80s — and believe me, I will — I need to make sure I have the funds to do it.

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So it’s best to establish milestones and goals so you know you’re on track. I don’t put a lot of thought into my life at age 65 because it’s nearly 40 years away, but age 30 is something I can work with. Word on the street is:

You should have 1x your annual salary saved in your retirement account by age 30.

That seems doable, right? I’m more or less on track, unless my salary jumps significantly in the next year or two, in which case I would need to have more, but that’s not a bad problem to have ;)

If you have more than 1x your annual salary saved, awesome! If you have less, you’ve got some work to do. If you have nothing, you have a lot of work to do. If you think saving for retirement when you’re in your 20′s is unimportant, I get it. I’m probably the least concerned of all personal finance bloggers about how wealthy I’ll be when I’m old and grey. I don’t like saving for retirement at all, but I do it anyway because I like the idea of being poor even less. Don’t be a self-saboteur and save nothing for retirement in your 20′s, it’s a huge pain in the ass to play catch up every decade thereafter.

How I save for retirement:

Without choice: work deducts 11% of my gross pay and saves it for me. I never see that money, so I never get to spend it. There’s nothing quite like being volun-told to get stuff done.

Automatically: I have transfers set up every payday that direct a small part of my paycheque to my RRSPs. If I didn’t think the above was already enough, I’ve got my own thing going in the same theme: money in, and money out before you can spend a dime. I like locking money in my RRSPs because I can’t get it out to spend it on dresses.

With time: I may add funds to my accounts grudgingly, but I appreciate the interest and dividends that boost the small sum each month. Starting early and saving regularly means my retirement nest egg has decades to grow, and I’m happy to report that, slowly but surely, that’s what I’m already seeing.

How much have you saved for retirement? How much more did you need? How are you getting there?

Short-term gain for long-term pain

I worry about people a lot. Sometimes because they’re crazy and I don’t really get it, but also sometimes because they’re just making decisions that I don’t think are in their best interest. It’s hard for me to avoid launching into a lecture to set them straight — so hard actually that I’m rarely successful at keeping my big mouth shut. But I have their best interests at heart, I promise.

I’ve been wrestling with the paperwork for my employer RRSPs for the past two days, and surprisingly, no one has been able to give me the answers I need… and they are really basic answers, like what is our Group ID. I am now resigned to spending this morning on the phone with an investment advisor in Toronto, because that’s the only solution. When I asked why no one knew how to fill out these sheets, can you guess what the response was?

No one knew because no one was participating in the employer RRSP matching program.

… Wait, what? This shocked me because “free money” strikes me as a no brainer. Frankly, I can’t sign the paperwork fast enough. So why are my peers declining participating in this great opportunity? I asked, and their answers were basically this:

“I need my entire paycheque. I cannot lose a few hundred dollars a month to the RRSP or stock purchasing plan because I need every penny I earn. I have kids/mortgage/car/all-of-the-above and I simply cannot afford to participate in our employer savings programs.”

Do you hear that? They don’t think they can afford to save. 

I don’t think this is an uncommon point of view either. I feel like many of my peers are unwilling to relinquish a portion of their paycheques to their future self in the interest of being richer now. It’s hard to convince a 25 year old that they will likely turn 65 eventually, and our place of employment may not be so keen to hand over funds then.

I only just started saving for retirement a few months ago, but it provides me with huge peace of mind. Even knowing that starting at 25 instead of 30 will net me over six-figures in the end makes me want to hug myself in congratulation for not being a dumbass. To put this savings off in lieu of car payments or a cable package or whatever else people buy instead can only be described as baffling. But at the same time, I get it. I feel stretched pretty thin right now (thanks, new apartment), and while I mused about cashing in a stock or two, I can’t bring myself to opt out of any of my employer savings programs, even though a huge chunk of my paycheque is going to disappear to these things every month.

The thing that keeps me on track is remember that if I don’t do this, I will be totally screwed. I will have to take drastic measures and save something stupid like $2500/mo at 40 to make up for my 20-something year old idiocy. I will have to work 60 hours a week until 65 just to make sure I can pay nursing home fees when I’m 98. My old, grandmotherly self will have to opt out of cruises and vacation homes, all because 20-something Bridget wanted an extra few hundred bucks for nights out or new clothes.

In short, I could experience some short-term gain right now for some serious long-term pain.

Why don’t young people take to their employer retirement and savings plans? Is there too much disconnect between present and future self? Is the money really “needed” now more than later? Is it because the paperwork is such a mess it complicates you right out of signing up?

Edit at 10:25am: I found a great article on MoneySense that says starting to save for retirement in your 20′s means you only have to put aside 6% of your income — for your whole life! — as opposed to 18% if you start later when you have kids and a mortgage. So nice to think that saving now means I get to keep 12% of my wage in my disposable income for the entirety of my working life and still come out with enough money to meet my needs.

Early Retirement Extreme

The Early Retirement Extreme (ERE) blog is one of my favorite of the online PF community. The author put away a ridiculous amount of his income (as high as 80% of it after taxes) for five years, then “retired” — not in the sense that he sits around doing nothing all day, but just that he doesn’t have to subscribe the average 9-to-5 lifestyle the rest of us have been raised to believe that’s-just-how-it-is.

I am probably never going to go the ERE route. Often people accuse the blogs author of being unrealistic or too extreme (haha), and he’s right when he shoots back they’re just unwilling to do the work he did.

I am unwilling, and I admit it. Heck, I embrace it.

I don’t want to eat tuna sandwiches every day for six years, take cold showers, or live in a $400/mo apartment (seriously, it’s that price for a reason). I really don’t want to give up traveling. I don’t want Apple, Victoria’s Secret, and Starbucks to cease to be a part of my everyday life. Nor do I want to miss out on dinners with friends, fine wine, and copious amounts of beer. I am spoiled, and I like it — it’s worth the money to me.

But I love this blog because I find it so motivating. Not motivating to retire at 32 or whatever, but motivating to keep doing what I’m doing so I have more options, including the option to work less or take time off just because. ERE changes how I think about my money, namely knowing that it’s important to have money for the sole purpose of making more money.

At this point, my passive income from investments is just enough to support my Starbucks habit and buy a bottle of wine or two a month. That’s not much, but not too long ago it was $0. I’m focused growing my little pool of wealth until eventually it’ll return enough that it could take care of my essential expenses. Imagine not having to work to pay bills, but instead use money already have to pay for everything? You could work (but only if you wanted to) just to have spending money. It’s like having an emergency fund that will last a lifetime.

This is an unusual way of thinking. Most people expect to have to work for most of their adult lives, not necessarily just to buy things but just because they have no idea that money can work for them. The pain-in-the-ass part is getting together the money to do that. It takes years — unless you make a huge income but live like a pauper — and maybe even if people were aware it was possible, they wouldn’t want to put in the effort.

I want to make the effort, even if it is somewhat half-heartedly. It’s nice to know I could being a super finance ninja and propel myself into self-supporting wealth in a half-decade if I wanted. Seriously, if you can live off a 4% withdrawal but your assets are earning 6%+, you’re set. Forever. But I’m cool with working for now, and shelving the ERE lifestyle until I feel more committed.