I am going to let you in on the best kept secret. When you start your first job, sign up to have 10% taken out of your paycheck and deposited into your retirement account. It's that easy.
A couple months ago, I met with a 23-year-old woman over Zoom just starting her first full time job. I explained how her retirement plan worked and then asked, "Do you know how much you want to save?" She said 10%, almost reflexively. It took me by surprise. Most young people either say they don't know or ask what I recommend. Out of curiosity, I asked how she knew that number. She shrugged and said everyone knows that's how much you save. When I pressed further, it turns out her family talks about it all the time. In her world, saving for retirement is ubiquitous and normal.
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I heard a story this week of a woman who wrote a letter to her granddaughter as she graduated from high school. Among a few other pieces of advice, she specifically wrote, "Be sure to save 10% into your retirement account."
We think of saving as hard. And it can be very, very hard. For those whose families didn't discuss saving for retirement, or at least with the specificity of saving 10%, or who didn't get a letter written to us at graduation, we missed that narrow window in our first job to put aside 10%, when it would feel "free" to save. Instead, we are faced with the double whammy of having to reduce our lifestyle and save more to the tune of 15%–30% given that we have less time for compound interest to work in our favor.
But we can do it, and many are by reducing lifestyles. Uniquely in this pandemic, saving has never been easier. We as a nation hit a 23% savings rate at the end of the second quarter. If those of us still lucky enough to be employed take this small window of opportunity to catch up on saving, then lock in those savings through automation in our retirement plans at work or IRAs, we can indeed get a second chance to save when it is relatively easy to do. A large behavioral study proves that once we elect a savings deferral percentage into our company retirement plan, more than 90% of us will stick with it, for better or for worse.
Last year I met with a woman in her early 60s. She was nervous she wouldn't be able to stop working but had never logged in to her retirement account. Imagine that moment, like a wheel of fortune spinning, as she waited while all the scenarios ticked before her. Statistically, it would land on something sad where her best hope was to keep working well into her 70s. But to both of our surprises, the wheel landed on jackpot -- her account showed she clearly had enough money for more than one retirement. Enough money, in fact, to walk away that very day. Underneath that account balance was the answer to how she won the retirement lottery, and it was 15%, an amount chosen at random, forgotten, and never changed as she worked for this company most of her life.
Saving can, indeed, be easy, and this is what tortures me. What if everyone made this one simple move on day one of their first job and saved 10%? They would never miss the money and then wake up one day ready and able to retire.
We need to spread this message far and wide. This week, bring the topic of saving money up at dinner or call a young person in your life. Personally ask them to save 10%. Even if you, yourself, didn't get the message and are behind on saving for retirement, still make that phone call. Then get a plan to catch up on your retirement this week.
Sarah Catherine Gutierrez is founder, partner and CEO of Aptus Financial in Little Rock. She is also author of the book "But First, Save 10: The One Simple Money Move That Will Change Your Life," published by Et Alia Press. Contact her at sc@aptusfinancial.com.