At what age do most people begin saving for retirement?

Question

My husband and I are both 30 years old, and we just started saving this year. We are only able to save $250 each month in a Target Retirement mutual fund. Our goal is to save 15% of our gross income each month (but right now, we are only saving about 10%). Will we have enough money when we retire? I don't want to be 80 years old, looking for a job at Walmart because we didn't save enough. My husband is in the military, so we should also be getting a pension at the end of 20 years in service. I certainly hope that social security, a pension and our Target Retirement mutual fund are enough to keep us out of the poor house!

Answer 1

You're ahead of the average... unfortunately many people wait entirely too long to save for retirement. When I was in the brokerage business, it was not unusual to come across someone fifty or more years of age who hadn't even started. I'd recommend in addition to your plans to open a Roth IRA for each of you... maximize your contribution if you can. As your earned incomes increases over the years, be sure to increase your savings accordingly; you'll be happy you did.

Answer 2

You are on the correct track. I hope that you are using a Ross IRA account for your savings so that all of the money that is earned will be tax exempt.

The really big question in your future will be the impact of inflation. That is the one uncertainty that is very difficult to plan for.

Assuming that your mutual fund will return 6% annually, a fair assumption, at the end of 30 years you will have $453,000. Of course as your financial situation improves you will be able to save more.

There is one caution that you need to be aware of. That is that you should not relie on just one particular mutual fund. That carries more risk than you might imagine.

The risk is that most of the assets of such a fund are concentrated in large capitalization stocks and bonds and the ratio of stocks to bonds changes with time reguardless of market conditions. There is also risk in that the target funds are essentially not managed, but instead consist of a basket of other funds from the same fund family, which may or may not have a decent track record.

It is my opinion, which of course may or may not be worth a great deal, you will do yourself a better service by beginning to do some research into investing and begin to accumulate some knowledge in this area.

For example, did you know that there are mutual funds that invest only in small to medium capitalization stocks that have growth rates that are considerably greater than the market averages such as PENNX for example with a 5 year return of 13%. Or ARTQX with a 5 year return of 13.5%. Or BRUFX with a 5 year return of a whopping 30%?

There are also funds that invest in foreign countries with growth rates that are much greater than those in the U S such as China, India, Russia, and Brazil for example.

By having a more diverse asset allocation you can reduce your risk and increase your expected return. Also by investing some of your savings in selected overseas markets you can partially insulate your saving from a drop in the value of the dollar.

Answer 3

Retirement is a whole new ball game. Our parents had a 3 prong plan.
Social security was one part
A company pension plan was another
And personal savings was the third.

Most of us will not be able to think of retirement in the same way current retirees do. Only those in the top 20% (if they save diligently).

We have been voting to allow companies to change their agreements and drop their pension plans. Companies say it’s too expensive for them, so now you get to do for yourself that which they can’t afford to do.

Companies say it is too expensive for them pay for medical plans in the same way they are now, so you get to pay higher premiums and deductibles and co-payments… and it will increase as time goes on

Social security is up on a potential chopping block. If that goes, you are all on your own.

It's a great thing that you have a pension, check to see if it's indexed for inflation, then you can add it to your savings in the following illustration.


Lets say you manage to save a million dollars by the time you are 67. You are both 30 now so that gives you 37 years.

1 million dollars will produce about 6% safely. That gives you $60,000/year. But in 37 years, inflation(3%/year) will give it a value in today’s dollars of only about $20,000/year. But one or both of you will probably live for another 25 years which will reduce it each year until it’s value is less then $10,000/year.

1 million isn’t what it used to be….

It is a linear equation, so if you only save ½ million, it will generate $10,000/per year instead of $20,000, and so on. You can figure how much you’ll be able to save. Again, this is what $60,000 will be worth after inflation in 37 years. can you live on $20,000/year?

The bottom line is that since we have decided we really want to put this on ourselves, we all need to start saving as quickly and as much as possible. This is not your parents retirement anymore.

I don’t mean to sound so pessimistic, and there are some different investment concepts that will give you a little better results, but most people aren't investment analysts, so we don’t even understand the consequences. We also don’t know much about asset allocation and investment strategies. It is becoming our responsibility to learn, and we better do it quickly.

One more tip. Get an appointment with a Certified Financial Planner(CFP) it will cost a little. They can tell you about living trusts to college for your kids, from budgeting to various employee plans. 401k, roth IRA etc, Also about insurance and particularly what kinds of investment vehicles are best for you(rather then best for your broker.. very important)

Good Luck………….. everyone.


on your social security statement, it shows the total you paid into social security. If we privatize social security, that's the amount that needs to total to 1 million dollars..............LOL

Answer 4

hmmm, that's a very important question. Thinking about retirement is the first step. You're right I would invest slightly more than what you are doing so now, but if you talk to investment specialists maybe they can give you a better way to save for retirement, not to mention grow your money

Answer 5

i'm saving now and I'm 23 - I put away 25% of my income and the rest is more than plenty for me - I dont use up all of it and sometimes I have so much left over i pop it in my retirement fund.

Answer 6

Do a search for "Financial planning tools" - you should find something that can forecast how much you should put away to get $X per year at retirement.