Procrastinators unite….tomorrow

One of my favorite things about authoring this blog is getting to read the various emails people send me from time to time. Yesterday, I received a simple, one question email…

I am fairly new to being financially savy and PF blogs. I just wanted to get your opinion. At what age/income should you open a IRA?

My response….

Never. Haven’t you watched the news in the last two years!? Quit your job, sell your assets, and move to Antarctica. America is doomed. Oh wait, what? The market is actually up 47.2% since this time last year? Fudge! I knew I should have invested in a Roth IRA instead of The Foxhole…

In all serious, the time to invest was yesterday. Don’t procrastinate, it’s time to get the retirement ball rolling. That is, assuming: you have income, you don’t have crazy amounts of high interest debt, you’re okay taking on some risk, and you don’t want to work until you are 120.

I really can’t tell you when you should begin investing, you have to make that decision for yourself, but I can share with you some pretty popular investment strategies for people under 40.

Step 1: Adjust your lifestyle so your expenses fall below your income. You have to be spending less than you make each month!

Step 2: Pay down any and all high interest debt (credit card, bank loans, etc) before you begin investing.

Step 3: If your employer matches a percentage of 401k investing, make sure you get that match. It’s free money and you have to be CRAZY to pass up free money. (If you don’t get a match proceed to step 4.)

Step 4: Look in to opening a Roth IRA. You can contribute up to $5,000 in it this year and it is a great investment vehicle for the younger crowd.

Step 5: If you were able to max out your Roth, then you should look in to going back and upping your contributions in your 401k from, say 5% to 10% (or whatever the heck you want).

That is the general order I come across in most books/PF blogs, but how you manage your money is really your call. If you want to live it up while you are young, contributing to retirement may not be the best idea. If you don’t want to be on welfare when you are in your 60’s then you may want to buckle down and begin growing your nest egg.

I personally began contributing to my 401K and Roth IRA as soon as I graduated college and got my first job, making $38k/yr. The earlier you start, the richer you will be.

I think her question is interesting and I’m curious, when all of you peeps started contributing to retirement. How old were you? What was your income? If you haven’t started yet, why not (debt, fear, stupidity)? Is there anything you would change in my “guidelines to follow” for retirement.

24 thoughts on “Procrastinators unite….tomorrow

  1. I started a couple of months ago! I started pretty much when you did, making about the same amount of money. I'm saving 4 percent plus employer's 2 per cent. Hoping to eventually bump it up to the maximum 8 per cent, although I think you can make extra contributions on top of that if you want to.

  2. I just found your blog and love it!

    That said, I haven't started yet and I'm 27. It sucks. I have 5K in CC debt, I'm getting married in October and my debt will be paid off next June. Then we'll be building an emergency fund for a few years and FINALLY, we'll start saving for retirement.

    Unfortunately we both took 20% pay cuts last year so we can't do all of it at once.

  3. But it is so much easier to just procrastinate… My wife and I have been procastinating on her Roth IRA contributions. Luckily we got of our arses last night and are setting up to start contributing to it again. The bad thing is that there was no reason for us not to be contributing, just procrastinating. Think of all the money we have missed out on.. Dang!

  4. I started when I got my first job – 5% of my salary and my employer double matched 10% of my salary. That was great free money!

  5. I started my retirement investing in March 2009, about 10 months after I graduated from college. I was making a hot $34,000/year. I started small and contributed about $100/month. I started to invest in the stock market around the same time, but put more money there because I wanted to tap into that money sooner. ____So if I could alter your steps, I would also ask her to think about her financial goals first. I mean, does she want to rent after college, does she want to own, invest in real estate, etc? The answer to those questions can change her investment strategy. In my situation, because I am looking to invest in property in 3 years, I need more cash now. So I don't have too many contributions going to my Roth/401K, but a lot going to my savings account/brokerage account. Although, I think you can withdraw up to 10K from a 401K for a DP on a house…____

  6. I've never had a 401k, but my mom told me she'd disown me if I didn't open a Roth IRA. Actually she just said IRA, but a Roth clearly made sense since I'm already in a higher tax bracket than when I started contributing. I started with my second paycheck from my job, which was at 26. I don't contribute the max allowed (boo hiss), because I'm trying to pay off some debts first, so I just contribute $200/month. Hopefully I'll pay off all this non-student loan debt this year and be able to increase it to $408/month.

    When and if my job gets a 401k (more likely a SIMPLE or SEP-IRA), then I'll definitely be contributing to that as well!

  7. I started saving 10% when I got my first job out of college (at 22). My employee matched 50% of what you put in up to 5%. Then a year later when I moved cities and jobs, I rolled that over to a 401K at my new job. They don't match, they put in 3% no matter what! And on top of that we get profit sharing, which ended up being around 1.5% of my salary last year. We could have increased it, but we chose to pay cash for Mr's tuition instead. We'll probably put 10%ish into a retirement vehicle for him when he graduates in May, but since we dont know where he'll be working yet, we don't know what type of vehicle it will be!

  8. I started shortly after I graduated too, but I have a PhD, so that means 10 years of university. Therefore, I was 29 before I got my financial act together, and 30 by the time I started contributing. On the bright side, I make a good living and am saving lots, so I hope to catch up. Plus, I really love what I do, and cannot fathom retiring at 65 (many in my profession continue to consult on a parttime basis for a long time) so I am fairly confident I'm in good shape.

  9. I started when I was 22, almost 25 now. However, I maxed it out the first year and have not put another dime in. I have been trying to get out of debt first and then I will contribute. I will have my CC debt paid off once my Refund from the IRS arrives. I hope to start my contributions again this year and also start my Matching 403 (b) in July. My employer will match 7% of my 6%.

  10. Right now, I'm involved in a 401K with my current employer; the first one didn't offer one and previous to that, I worked from home on a small business that I started in 2006. I always kick myself for not saving more when I was self-employed! Unfortunately, my income become sporadic and so anything I ended up saving got spent when cashflow ran dry. Not a great scenario to be in. I also have a small holding of precious metals that I'm trying to build up.

    I learned a lot from the experience of my first business though and think I'm better equipped to tackle this problem; once I move on from my current job and can work on my business full-time, I'm going to find out the best way of setting aside some cash in a formal investment account.

    -Blair
    CostRefuge.com

  11. I started at 22, when I got my first teaching job in CA and my salary was around $37k. CalSTRS automatically takes out 7.5-8% for retirement and I opened a TSA on my own. The Mr's company did not start retirement bennies until one year of work was completed…so he was 24, making $42k, and we put in 15% (with a 2% match). We opened our Roths at age 25 and not until I started reading about some debt punching ninja did I even *think* to max them out! We felt 2-3k a year was fine. No more, thanks to you(!), our 2010 automatic contributions put us at $4,200 and I am looking to supplement that last $800 with random deposits throughout the year. We will max them out this year!! Thanks for the motivation!
    Trina

  12. I started contributing to my Roth IRA in college when I was 18 and have been contributing the maximum every year. I'm getting my Ph.D. now, but they pay me to do it (only $26,000/year), so I'm able to continue contributing the max. Unfortunately, since I'm still in school I can't open a 401k, so I won't be able to start that until my late 20s or early 30s.

  13. Thanks for answering my question ๐Ÿ™‚ I'm currently in a transitional job that's holding me until I go back to school and get a second job. Which I have an interview today(yay!). I've wasted two years at this crummy job because no one hires anyone with an English degree. Boo so I have student loan debt ( boo again), but my husband is our breadwinner and has a Roth so yay. ๐Ÿ™‚

  14. No one knows where social security will be going in c. 50 years, but with entitlement programs becoming more and more expensive, it's a safe bet that benefits will be lower for retirees 50 years from now than for the Baby Boomers retiring in the next 10 years. So it's probably all the more important for younger people to start a retirement plan early and contribute as aggressively as they can.

    • Don't forget too that people are living longer and long past retirement age, and health costs are soaring for the elderly. When social security was first passed in the mid-30s, people were expected to live only a few years after they stopped working (a fact that critics of the current state of the program conveniently tend to forget). Now it's becoming more common to live past 90 or even 100.

        • Dude, I'm a lot older than you, so we'll have to schedule that beer a few years earlier and maybe do it on my favorite crater on the Moon. ๐Ÿ˜‰

  15. I have to *humbly and politely) disagree with you Mr. Ninja! (Humbly and politely so you don't run me through with that katana…)

    While you don't want to take too much away from paying down high-interest debt, it is vital to start an IRA early. Maybe you don't contribute much, but the earlier you start, the more compound interest you accrue. So right now, I'm only able to contribute $100 a month — and my husband doesn't have one yet. (We'll fix both those things once our debt is in the rearview mirror.) But it's something.

    My favorite example? One woman contributes $5,000 a year from age 22 – 32. After that, she never puts in another dime. Her twin contributes $5,000 a year, but she doesn't start til age 32. She stops at 62. Despite 20 more years of contributions, the second twin has over $100,000 less in her account (assuming a 6-7 percent average ROR).

    That's why I started my roth now. It may not be much, but at least that pittance has 30 years to grow! (FYI, I was 30 when I started and the bank guy I went to praised me for starting so early. Frankly, I thought it was a late start…)

    • The only katana attack I will give is this…

      Generally people recommend paying down high interest debt before investing because credit card interest is usually 15% or higher. The chances of your investment portfolio returning higher than 15% per year is pretty dismal. By paying off the high interest debt, you are essentially guaranteeing yourself a 15% rate of return.

      Compound interest is freakin' awesome and that is why I recommended starting yesterday, but i'd PERSONALLY rid myself of CC debt first. I totally see where you are coming from though and have no beef with your path. Either way we will both be rich when we are old ๐Ÿ™‚

  16. Didn't start until I retired from the Air Force. I think I might have put a few thousand into a regular IRA during my 20 years of service, but we also didn't have the TSP back in the day. Now, for me, it is 5% in 401k (for max match) and max out Roth IRA ($6k). The wife does 15% in her 401k (no match) and we also max out her Roth IRA. We are getting ready to pay off the mortgage and my 401k percentage might go up 1% a year until I can max it out when we are done with house payment.

    I do wish I had started earlier but living below my means just wasn't possible on what we were making. Since that time I have increased my income about 200% and I also have a retirement check coming in. It is a lot easier to save when you have income.

    I love your blog. Great job.

  17. On the other part of the world, I have "Charlie bit my finger" t-shirt *cheeky grin*

    Ps. We have a system where the employer has mandatory 9% contribution to our retirement account but it can't be touched until I reach 64. Lately I have started my "retired by 45" account that can be accessed earlier. Why wait too long?

  18. I started first year out of college myself. I had such a difficult time my first year of work, that I knew I had to save in order to escape hell! lol.

    Welcome to the Yakezie Challenge! Look forward to seeing you around the community more. FYI, we've got a badge, a google groups, and a carnival if you're interested in participating. See the original post on the bottom for more details.

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