OPINION | SAVE YOURSELF: Early focus on retirement leaves room for comforts later

I got some important feedback from a reader last week. He contended that my home affordability metric of a payment of less than 14% of gross monthly pay was too conservative. He made a compelling argument that buying at a higher affordability metric helped him build considerable wealth in his home over time.

In his case, a higher mortgage payment was not in lieu of a savings rate to get him to retirement (he is happily and successfully retired). I asked him to consider whether there could be a generational divide. His decision was more house or more spending, but he had not been confronted with painful spending choices.

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In today's world, I believe the choice is more house or more saving. Remember all the costs that have risen or been invented over the years -- child care, health care, cellphones, entertainment subscriptions, etc. When you compare those increases or new costs with the old mortgage affordability principle that was closer to 28%, retirement savings get the squeeze. Remember, we don't talk about, dream about, value, discuss or believe in saving for retirement as a society -- yet.

Instead, look at what retirement savings compete with. We have spending that people can't part with -- non-negotiables -- for services and experiences that we have literally made up in our modern era. And I can tell you with authority that people consider them as necessary as child care or health care. And they are different for everyone.

I will admit that some Instagram covid scrolling in 2020 tricked me into believing I had dangerously low levels of eyelashes, something that could be fixed by paying $400 for a full set of false lashes and hundreds of dollars more in a year to maintain. My fashionista friend walked me off that ledge just in time for me to log out of the Arkansas 529 website and abort my mission to back down my kids' monthly college savings deposits to fix my eyelash debacle. Phew, that was a close one.

While it's not my cup of tea, lots of people get regular manis/pedis for $80 a session. Then there are health club memberships that can cost more than $100 a month, and adding a trainer can top $300 per month. Golf and social club dues can creep up into the equivalent of a small mortgage payment. Even just being a sports fan can get expensive, with thousands spent annually on tickets, hotels and jerseys.

Finally, think about the ultra-fast fashion industry that has somehow persuaded the average American to buy a new clothing item every five days. I once spent $120 on a pair of 3.75-inch Comme il Faut stilettos and paid hundreds on private tango lessons during a dancing vacation in Argentina. Almost all Arkansans, by my estimation, would pay some amount of money to NOT have that experience! Maybe they look at such spending with as much pain as I do the duck hunters who pay for duck club memberships to get out at 5 a.m. in the freezing cold and wade through freezing water? They have duck meat to show for it. I, on the other hand, have a deep volcada followed by a perfectly timed boleo.

Assuming we are on the same page that we not only have lots of new ways to spend but also lots of marketing to trick our brains into believing we need new eyelashes or new outfits all the time, here is my conclusion.

We want what we want.

I actually think we can have it, but there are two rules. One, retirement saving comes first and is non-negotiable. Two, we can't have what we want and what others want. For example, I can tango with stilettos but probably not stilettos and eyelashes. In all seriousness, we probably can't have all those luxuries and the big house.

Let's begin with retirement. That 10% ends up being quite a bit of money. If taxes and benefits are eating up 40% of gross pay, then tacking on 10% in retirement savings means that you are left with just half of your pay for house; car; bills such as utilities; insurance; health care and child care; food; and those "non-negotiables." What about a 10% tithe?

Is there a way around saving 10% for your entire life? Actually, yes. My 10% metric is not some moral cause. No, it is absolutely practical. An inheritance is a fantastic way to not have to save for retirement or to be able to save less, especially if you don't plan to pass any inheritance down to the next generation. But there is another way, folks. Front-load your retirement savings.

I met with a gentleman who is in his mid-40s, a middle-income earner who is sitting on $800,000 in retirement. When we met, I was thoroughly confused. His savings rate was only 6%! He explained that he started his career at age 23 and the first few years was saving very little. One day, an adviser came in and explained compound interest. After that 30-minute presentation, our young employee downsized his car, committed to staying in his small apartment, canceled cable, brown-bagged all lunches and figured out how to put the maximum contribution into his plan, $16,000 annually at the time. That came to about a 22% savings rate.

He maxed his retirement for 10 years through his early 30s, then backed it down to 6% at the point when he got married, and they bought a new house with a 15-year mortgage.

By my calculation, he will be able to stop working at age 55. Oh, and their house will be paid off.

But here's the thing. He doesn't want to stop working at 55. He loves his job and plans to work until 65. This married couple in the prime of their lives now can take on a number of expensive hobbies, home upgrades, nice vacations -- even false eyelashes!

I asked him what it was like to save so much, and the story admittedly starts to break down a little. That little car he drove back then? He spent a lot of time doubting himself in his 20s and 30s. He wondered if it sent the wrong message -- did it make him look unsuccessful? He was a saver in a world of consumption, in a world that values and judges on that consumption.

But in truth, he happily married after meeting his wife in a park. What I wouldn't give to go back to his 25-year-old self who made the decision to max out his retirement and tell him it would all work out.

Sometimes I do wish I had been a financial planner in 1950 -- yes, as a woman, that would have been impossible, but follow me. I could be in a world where the pressure to spend wasn't so crushing. I could ask a 20-something young woman to max out her retirement for five to 10 years, and then with the laws of compounding, she would free up her 30-something self to do even bolder, better, bigger things.

But even just saving 10% for life would work. I would then be reasonably certain that nothing would risk that -- no home purchase, no lifestyle creep, etc. And with the laws of compounding, an entire generation would be positioned to retire on its own terms.

The truth is that right now, asking people to save 10% starting in their 20s is radical. There are so many people who would opt to save nothing or very little, even at the risk of forgoing a company match (free money).

I ask you, readers, have you front-loaded a retirement and reaped the benefits in middle age? If so, what is your best argument to a young person starting a career to consider such a move?

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.

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