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.