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The Time Is Now — To Save for Retirement

Why retirement planning should matter to you (yes, you)

What are your plans for retirement?

Crazy question, right? You’re probably still young, in your 20s or 30s, and retirement seems so far off. You’re so busy every day with work and church and meetings and community stuff that you don’t have an extra second to think about playing golf and sitting on the porch when you’re 65.

I get that. For you, that’s probably 30 or 40 years from now. You’re probably young and healthy, and retirement seems like a lifetime away.

But here’s the thing about retirement. The earlier you start planning, the more income you’ll have to live off of when you quit working. Plus, you’ll probably need a lot more saved up for retirement than you think (most people do), so starting early gives you time to save for that.

Compound Interest

The absolute best thing about saving for retirement over a long period of time is the power of compound interest.

What’s compound interest? Only the coolest thing ever.

Here’s how it works. Let’s say you put $1,000 in a fund that has 10-percent interest. At the end of the year, you would have earned $100 in interest on that $1,000, meaning you now have a total of $1,100.

The next year, that 10 percent would earn you $110 in interest, bringing your total to $1,210. The following year, you would earn $121 in interest, and this would continue every year.

Your interest will build and grow like a rolling snowball. That’s why it’s called “compound interest.” The more money you have in your account, the more compound interest works in your favor.

Here’s another way to think about it: Let’s say you put $2,000 in a 12-percent fund once a year from age 19 to 26. Then you stop investing after having put a total of $16,000 in your investment funds.

Your friend didn’t start investing until she was 27, and she put $2,000 a year in a 12-percent fund until she was 65. That means she invested $78,000 over the course of 39 years.

So to recap, you invested $16,000 for eight years and then stopped investing when you were 26. Your friend invested $78,000 for 39 years, starting when she was 27. So who do you think would have more money at age 65?

That would be you. And, actually, you’d have a lot more money. Based on those numbers in a 12-percent fund, you would have more than $2.2 million at age 65, while your friend would have around $1.5 million. While the amount of money you’ll need to retire at 65 is based on your situation, I think there’s a pretty good chance that $2.2 million will do the trick.

The longer compound interest has time to work, the better it performs for you. Since you invested earlier than your friend, the interest kicked in sooner.

So that’s why it’s important to start as early as you can, even if you only have a few hundred dollars per year to invest.

Now, hopefully you’re all fired up after seeing how compound interest works. And that’s awesome. But I do want to make sure you have a couple of other priorities in place before you start investing.

When Am I Ready to Start Retirement Savings?

Whether you are 25 or 55, you should never start saving for retirement unless you have taken care of these three priorities first.

  1. Save $1,000 for a starter emergency fund. This will keep you from putting life’s little emergencies, like a flat tire or an unexpected doctor’s visit, on a credit card.
  2. Get completely out of debt. Make sure you have zero debt before you start saving for retirement. That’s because your biggest wealth-building tool is your income, so the less you’re giving to MasterCard and Sallie Mae, the more you can save away for the future.
  3. Save a fully funded emergency fund of three to six months of expenses. This is like your starter emergency fund on steroids. With this fund, you’re setting aside money in case you lose your job, wreck your transmission, need a new HVAC, or experience any other expensive emergencies.

When you don’t have debt and you have potential emergencies covered, you’re ready to move into investing for retirement.

This is a big deal. So if that’s you, then congratulations!

But what now? Where do you invest your retirement money in the first place?

I recommend a 401(k) and/or a Roth IRA, and ideally you’re investing 15 percent of your income. If your employer offers a match, start with the 401(k) and invest up to the match. If you don’t have the 401(k) option, then go with a Roth IRA because your money will grow tax-free.

Commit to Save Regularly

Here’s the thing about saving. It’s really easy not to do.

That’s why you have to make saving a routine part of your life. Make it automatic, using direct deposits from your paycheck if possible.

Even if you’re only able to invest a little bit, that’s better than nothing. And if you’re in your 20s, the amount isn’t the point. The point is that you want to make a habit out of investing.

Most retirement accounts make regular saving easy. Like I mentioned, you can schedule regular contributions from your paycheck into your 401(k) or Roth IRA.

You might be thinking, But how much of a difference is $50 a month going to make? Remember compound interest? It could make a lot of difference. So don’t wait.

One of the financial principles I constantly talk about is the fact that good money management is about behavior, not math. Get in the habit of investing, and you’ll set yourself up for an awesome future.

Who Can Help?

Don’t try and invest on your own. Find someone you can trust.

If you’re just getting started, you’re going to have questions. If you’re like me, you’ll have a lot of questions. That’s why you need an experienced, professional investing advisor who can answer those questions and help you set up a plan.

You want to find someone with the heart of a teacher, someone who’s willing to answer all your questions and doesn’t make you feel stupid for asking them.

If you don’t understand a word they say, and if they don’t speak in basic terms to help you, then find someone else.

A good advisor will also help you avoid panicking during the usual ups and downs of the stock market. They’ve been there, done that and got the T-shirt, so they know what to expect when you probably don’t.

Investing doesn’t have to be intimidating, and that’s where a good advisor can help.

So, remember, you’re never too young to start investing.

Get out of debt. Put an emergency fund in place. And, after that, start saving for your retirement.

I know it seems like a long time from now, but it really will be here before you know it. The last thing you want when you’re 65 is to be broke and moving back in with your kids.

Let the power of compound interest get to work by starting on your retirement as soon as possible.

Get a free online budgeting tool from Focus on the Family at

Copyright 2014 Rachel Cruze. All rights reserved.

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About the Author

Rachel Cruze

Rachel Cruze is a seasoned communicator and presenter, who has been speaking to groups as large as 10,000 for nearly a decade. The daughter of Dave Ramsey, today she uses the knowledge and experiences from growing up in the Ramsey household to educate America’s students and young adults on the proper ways to handle money and stay out of debt. Her book, Smart Money Smart Kids, co-authored by her dad, will release in April 2014.


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