I just opened a 401(k) at age 23 thanks to a hard truth about retirement I kept hearing from 60-somethings

Business Insider Finance 1 month ago

When I first started working on the reporting for Business Insider's "Real Retirement" series, I didn't think it would have as much influence on me as it has. Two months and more than 10 interviews into the series (more stories are on their way!), I've found myself thinking a lot about what I'm doing to save for the future, even though I'm still in my 20s.

I was 22 when I started working on the "Real Retirement" series. Almost everyone I interviewed told me the same thing, whether they retired with hundreds of thousands of dollars in their accounts or retired with nothing saved: They wish that they'd saved more for retirement, and started saving sooner.

I've talked to a retiree who retired comfortably at age 52, and I've talked to a retiree who was able to spend $10,000 on woodworking tools in his first week of retirement.

I've also talked to a retired couple that struggles with spending about half of their monthly income on rent in Nashville. And, I talked to lots of people like 69-year-old David Fisher,  who threw away his retirement account statements until age 40, and told me, "I wish I could go back, because I'd be worth twice what I am now."

Many of the retirees that I've talked to said they wished that they had taken a chance that I have now: to start saving for the future when they were young.

Looking back on their stories, those who are living comfortably in retirement almost all started saving by age 30 in some form. And there are a few reasons why this is so important — primarily, because of compound interest.

A Business Insider graphic I came across while researching for this series explains the power of compound interest perfectly:

In this scenario, created by Business Insider's Andy Kiersz in 2014, two people start saving the same $200 per month in a retirement account with an estimated 6% rate of return — only one starts 10 years sooner than the other. Emily, the blue line, started saving at age 25 and ends up with nearly twice as much as Dave, who started saving at 35, even though she only contributed 33% more. Compound interest helped her money grow over time, and its effects are hard to replicate.

When I saw this graph, I realized that saving more later is no remedy to the problem — while more money can boost your retirement account, having time on your side is much easier. And, data from the New School's Schwartz Center for Economic Policy Analysis has shown that saving more, not working longer, is the only way to prevent financial problems in retirement. In order to save more, I'd rather start now and have compound interest on my side than panic to scrape together every extra dime I have when I'm 40 or 50. 

While I may not have the power now to put $300 a month into my 401(k), I have time, and that may be just as powerful. So for my 23rd birthday this year, I set up my first 401(k).

I can't say I contribute much — it's not even enough for me to really miss it coming out of my paycheck. Once I achieve a few other financial goals I have right now, I'd like to put even more into my 401(k), hopefully well before I turn 30. 

I look at graphics and read research about retirement all day, but to me, nothing has made the importance of starting to save for retirement earlier more apparent than the stories of real people who are now seeing the result of their saving (or lack thereof).

Though the idea of retirement is still far off for my 20-something self, nearly every time I'm on the phone with a retiree for these stories, they ask: "Have you started saving yet?" 

And my answer now is, "Yes, I have." 

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