Unfortunately, there’s a lot of confusion surrounding the topic of saving for retirement. You’d think it’d be something we learn about in school, but most of us just gather bits and pieces of knowledge from parents, coworkers, relatives, or friends. Although almost everyone knows that saving for retirement is important, many people don’t have their facts straight.
Today, I want to break down three of the most common myths about saving for retirement. As a society, we need to do better about educating young people (and old people) about the value of saving early and saving correctly.
Myth #1: It’s Not Worth Saving If You Make Less Than $20/Hour
I can’t count the number of people who’ve told me that they aren’t going to save money for retirement until they’re making at least $20 an hour at a full-time job. So many people graduate from college and start a part-time gig that doesn’t pay well, and as a result, they assume that they’re not ready to save for retirement.
That’s simply not true. The earlier you start saving for retirement, the better, no matter how much money you make. Think about it this way. If you saved just $1,000 a year for retirement (about $83 a month) for three years after college, that money could be worth over $70 grand by the time you retire!
Every little contribution counts, so start now regardless of how high or low your salary is. Don’t wait until it’s comfortable to start saving. Trust me, the sacrifice will be worth it in the years to come.
Myth #2: You Can Only Save If Your Job Offers a 401K
Many people don’t even contemplate the idea of saving for retirement until they see a 401K listed in one of their job benefits. In truth, you can start saving for retirement much sooner, with or without a full-time job.
Even if you don’t have access to an employer provided 401K, you can open an IRA with a bank and begin socking away money for the future. You won’t get a company match, but you’ll get the same tax benefits and compound interest. You are never too young to start saving; I’d even recommend beginning your contributions at age 18. It’s not difficult to open an account, and you can easily learn to invest with something like the Couch Potato Method.
Myth #3: I Need a Million Dollars to Retire
Oh boy, don’t we wish this one was true. Reaching a million dollars in your 401K or IRA isn’t the end-all-be-all of retirement saving. At one point in time, a million could take you a long way after you quit working. Now, that isn’t necessarily true. People are living longer and inflation is changing the value of our dollar.
Experts estimate that depending on when you retire, you likely need 10 to 12 times the amount of your current income. That means that if you and your partner are used to living on $150K a year, you’ll likely want to have $1.5 million or more in the bank before you retire.
If you’re worried that you’re not aiming to save enough, reach out to a financial expert for advice. Don’t just assume that achieving the “millionaire” status will mean you can lead a cushy life once you stop working full-time.
Don’t believe everything other people tell you about saving for retirement (including me!). Do your own research. Make your own calculations. Whatever you do, don’t leave the task until your 30s or 40s. The earlier you can start, the less you’ll have to worry when you’re old and gray.