Race to Retirement

Or, it is never too early to plan for your future.

I cannot count the number of times I’ve heard someone say that schools should have classes preparing kids for real life situations. Don’t get me wrong, I think a lot of classes in school are completely necessary and beneficial for students; however, I also think that having a class dedicated to teaching life skills (i.e opening a bank account, setting up a retirement fund, how to file taxes, etc.) would have been extremely useful. To me, these skills are 1000% necessary and they are hard to learn unless you are taught by a parent or you take the initiative to listen to Dave Ramsey. I was one of the lucky ones who had a dad that spent his career in the finance industry. He started setting my sister and I up for “adulthood” at a very young age and it is something that I will definitely be passing along to my children. At the age of 5 or 6, my dad set me up with my first savings account and started teaching me how to prepare for my future. As a child, I hated my savings account. Why should I have to put birthday/Christmas money aside instead of spend it? It was my money! Now, at the ripe age of 25, I will say it to anyone who will hear it — it is NEVER too early to start saving and planning for your future.

As a “piggy back” to my daily intention last week, I wanted to follow up with a piece on some basic ways to prepare for your future because, let’s face it, nothing is guaranteed. I, like many people, do see myself retiring one day and not working forever, so planning for that has been extremely important to me as I further my career. Unfortunately, relying on Social Security to support me later on in life is something that I do not want to depend on. My hope is that it will still be around in 40 years, but that is not a guarantee, so Marc and I have decided to be very aggressive with our plans for retirement. This is definitely a privilege that we both have as we have both been employed since we graduated college and throughout the COVID pandemic. I understand everyone’s financial situation is different, but I do think there are many good ways to start prepping for the future, even if it is just a little bit at a time.

When I was 19 I got (what I considered to be) my first “real” job as a lifeguard in College Station. Sure, I had done babysitting and pet sitting prior to this, but nothing was ever consistent. To be completely honest, I just wanted a summer job so I could stay busy and have a little extra cash for eating out…Drunk tacos were my nemesis… Although I’m not condoning under-age drinking in this piece. I worked 39.5 hours every week from June until August. It was the most hours I could work without becoming a full-time worker and honestly I really enjoyed it. I spent all my days with other college students, got lots of free pizza, and had the perfect tan. Over the course of that summer I made roughly $4,500 dollars and I thought I was rich! Obviously as a lifeguard, it was just a part-time summer job with no benefits so at this point I still had no clue what a 401(k) or Roth IRA were. The next spring though when it came time to file my taxes, my dad decided it was time to help me start planning for my future. He explained to me that I should calculate a percentage of what I made during that summer and put it into a Roth IRA. Just because the city didn’t offer me any benefits, it didn’t mean I couldn’t start preparing for my future myself. He instilled in me a need to plan for my retirement even when all I wanted to do was buy Franzia and Nachos Bellgrande from Taco Bell.

At this point, I still had no clue what a retirement account was. Yes, I had a savings account and a checking account, but nobody had ever taught me about a retirement account. Who really wants to think about retirement when they are 19? Honestly, I don’t think I truly understood what a 401(k) or Roth was until I was about 21 or 22, but when I finally realized what they were for I knew it was important to start discussing with people.

In a very short and sweet summary, a traditional 401(k) account is made up of pre-taxed money that is set aside each paycheck for retirement — meaning the portion of your paycheck that is set aside in a 401(k) is done before income taxes are taken from a paycheck. Some employers will even match an employee’s contribution (up to a certain limit) as an incentive or employee benefit. Upon retirement, the money will then be taxed when it is pulled out of the accounts it is set up in. On the other side, a Roth IRA is an account that is made up of money that is contributed after income tax is already taken out. Unlike a traditional 401(k), when it is time for retirement the money can be pulled out of the account without having additional taxes taken out of it. While both plans have their benefits and disadvantages, I think the important aspect is that they are being contributed to in any amount.

Before getting married, Marc and I were very open about our financial situations. I truly think it is one of the most important things to be honest about with each other because a huge contributor to divorce is financial hardships. Topics that may seem years away such as when do you want to retire or how many kids do you want are critical when taking steps to plan for the future as a couple. For instance, if Marc wanted to retire at 35 and live the FIRE lifestyle (financial independence, retire early), we would be living a very different life right now. I give a lot of props to the people who live that lifestyle, but saving nearly all of our income and only working for the next 10 years is not the way either of us want to live now. I like eating out at restaurants…probably more than I should admit. Marc and I love to travel and go on vacations, live in a nice house, buy clothes, spoil our cats, etc. Even while doing these, we still keep in mind that it is really our future that we want to plan for the most because, long story short, we want to retire! Is it bad that I am only 25 and already counting the years until retirement?

Because retirement and our future is so important to us, we have been very focused on making sure we are on a path that will allow us to retire when and how we want to. To do this, we both have a 401(k) through our employers and a separate Roth IRA that we contribute to individually. We also have a budget that we try to stick to — key word being “try” because we are definitely not perfect. Having a guideline though of how we use our money though is helpful because we can track exactly where our money is spent. We use the Mint app to help us calculate what kind of spending we do (restaurants & bars, gas, entertainment, household goods, mortgage, etc.). This knowledge helps us determine our monthly budgets to ensure we are hitting our goals. Without tracking this, we would have no clue how we spent our money or what we had left over to save.

So, regardless of your age, I think everyone should start planning for the future as early as you are able to. Whether it is just contributing an extra $20 a paycheck to a savings account or maxing out a 401(k) contribution, any little step that can be taken to plan for retirement should be taken. It may not seem worth it now because retirement seems ages away, but that little nest egg will be completely worth it in the end. If you’ll excuse me I need to start my Pinterest retirement board.

Originally published on October 22, 2020