How to Have More than Enough Saved for Retirement

The Wall Street Journal recently gave some advice to new college graduates on how to be sure they have enough saved for retirement. It's a good piece for all of us to read, but if you have a new grad (or graduating soon) in your life, it will be especially valuable for them to read and apply it. Here are their main points along with my comments:

Your youth is a giant investing advantage that your parents no longer have—don't waste it. Start saving for retirement. Now.

I agree 100%! As I've noted, the number of years that your money is allowed to grow is the most important investing variable any of us has. And those who are young have the HUGE advantage of time to let their investments compound.

If your company matches your contribution to a retirement-savings account, such as a 401(k), put in at least enough to get the full employer match. A $1 for $1 match is a 100% return on your investment.

I don't know about you, but a 100% return on an investment is a lot better than I normally do on my own. :) That's why I've been getting the full match on my 401k for almost 20 years now. (I also contribute much more than the match -- I put in the maximum allowed.)

Consider putting money into mutual funds that will automatically give you investment diversification, such as balanced, target-date and global asset-allocation funds. These products are simple solutions for those who don't want to spend time managing their investments.

I'm surprised they didn't mention index funds and/or keeping investment costs low. Even a half percent in extra fees adds up to a fortune over a 40-year investment period.

When you get a raise, put half of it into your retirement fund, and you'll never miss it.

GREAT advice. I wish someone had told me this when I started working. I ended up saving much more than my raises (by growing my career and cutting spending), but if I had started earlier I would have been much better off than I am now.

When you switch jobs, roll your retirement fund into a new one; don't ever cash out.

Believe it or not, nearly half of all workers cash out 401(k) savings when they change jobs even though they have to pay personal income tax and a ten percent penalty for early withdrawal. Yikes! I have changed jobs three times where I had 401k funds and I ALWAYS have rolled them over into an IRA (which I then put into Vanguard index funds).

The piece ends by suggesting that recent grads get a financial education so they know how to manage their money. They can take a class, read books, or, of course, check out websites/blogs. :) As those of us who are older know, just a bit of knowledge is all you need to have and apply to make a success of your financial life. Study, apply, and reap the rewards!

Comments

[Matt]

401k match? What is that?

Oh yeah something my employer did before the Great Recession.

[Old Limey]

Get really comfortable with using the words, "I can't afford it".

Too many successful young people have a burning desire to possess things that they cannot really afford so they squander their future by buying them anyway, primarily to impress their peer group.

Examples from a group of 45-55 year olds that my youngest (very frugal) daughter is now part of:
Flashy automobiles
$100K Country Club and golf club memberships, expensive wines
Private schools and out of state universities for their kids
5 br, 5ba, 4500sf homes with expensive furnishings and landscaping, and in gated communities.

This is how the "Want it all now" high income, hi-tech generation like to live.

[Christa]

I wish my youth was spent more mindfully. I always invested in a 401(k) at the company match -- but only after the mistake of working 3 years without investing at my first job. I missed out on investing thousands by ignoring the 401(k) opportunity the first 3 years.

[Lance @ Money Life and More]

I put a lot away for retirement and follow a lot of what this post says. I put 1/2 to my whole raise to retirement depending on the year. I am now up to 21% post tax into Roth 401(k) and Roth IRA and that doesn't include my employer's 4% non-roth match. I think this will really set me up well and hope others my age (mid twenties) can catch on while their expenses are low and they have time on their side. I attribute a lot of my success to reading many PF blogs throughout high school and college.