By David Podos
Saving for your retirement may not be high on your list of priorities, but it should be. A January 2016 article from “Pay Scale” and authored by Gina Belli notes that “only a very small minority of workers are saving enough for retirement.” According to the article, around 50% of households age 55 and older have nothing saved for retirement. That’s “0” folks, zip, zippo, and while 95% of you reading this are a far cry from 55, many of you have parents that age!
Belli continues with a few other statistics, stating that Generation X is shockingly unprepared for retirement, but, and finally here is some good news, she notes that the Millennial generation (which most of you dear readers of Campus News belong to) “are doing better at savings.” Now, why is that? One of the reasons Millennials seem to be saving more than other generations notes Belle, “They are scared to death of being broke!”
Now, that may not be such a bad thing; fear sometimes can be a powerful motivator, and that seems to be working in their favor. However, I also believe they are savvy enough to figure things out – what’s important and what’s not so important – for amongst all other previous generations, the Millennials have grown up with incredible technological tools, giving them information and access to unlimited resources.
All that being said, a person must be aware that saving for their future is one of the most important financial decisions they will ever make; but, even awareness isn’t enough, for the hard cold fact is this: You also need to make enough money to save money!
In today’s economy that can be one hell of a challenge for many of us. While the country is showing some signs of recovering from the great recession of 2008, unemployment rates are still too high and higher yet for minorities. Wages have stagnated for most American workers regardless of gender, ethnicity and/or age. When taking into consideration the inflation rate over the past 40 plus years, wages, if graphed out, look more like a patient who just went into cardiac arrest; nothing on the graph just a flat line.
So, if you’re lucky to have a full-time job after graduation, hope that your new employer provides you a “livable wage.” But, if you are struggling with a low-wage job, you may still be able to put aside some money for your future retirement. Let’s do a bit of calculation on this.
While many financial advisers suggest that you start to save as soon as you can (early 20s seems to be one of the best scenarios), you also will need to save as much as you can; most advisers say you need to set aside at least 10-15% of your annual salary each year, but that number may be out of reach for many. What to do? Remember this, a percentage of something, anything, set aside for savings (no matter how small it happens to be) is better than 100% of nothing. Now let’s apply that to the growth of wealth.
Here’s the recipe: Money, time and interest create more money – period! Of course you want to get as much interest on your savings as possible, so you need to “shop” around for a place to park that money, and get the best interest rate possible all the while taking into consideration your “risk tolerance.”
For the sake of conversation and keeping it simple, let’s use the following situation, which is not far-fetched at all. Upon graduation you land a job paying $35,000 per year and you’re 25 years old. If you put just 3% aside towards savings, that equals $1050 a year. Taking some time to do a little research, you find a moderate risk investment paying 4-5%, like corporate bonds, for instance. Let’s say that the interest rate is fixed, not compounded. Even at a fixed rate of 5%, if you continue to put $1050 a year away for 40 years, at age 65 you will have amassed $42,000 plus interest of $2100 for a total of $44,100 towards your retirement. If your investment was put into an account with compound interest (earning interest from your interest) your total would be even more! Obviously if you were able to put more away each year as your income rises (we all hope for that one), you would create much more wealth!
The other day I was thinking about how much I spend on coffee at my favorite coffee bar. I estimated I buy at least 5-7 cups of coffee each week averaging $2 a cup, so that’s $14 a week on the high end, $10 per week on the low end. What if I cut that in half, purchasing only 3-4 cups per week for a savings of $8 per week or $32 per month?
Multiplying that out, I would save $384 year, in 10 years that’s $3840, investing that with a miserable 2% interest, I would be just shy of $4,000!
Finding ways to save, while difficult, can be possible for most of us with a little sacrifice. So, even a little bit put aside is a good thing, and remember: Time, money and interest make more money; and that saving a small percentage of something is definitely better than 100% of nothing – but just don’t completely give up the coffee!
David L. Podos is an adjunct instructor for the Center for Social Sciences, Business and Information Sciences at MVCC.