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Financial discipline in early years of career makes difference in retirement savingscomment (0)

September 12, 2013

By Carrie Brown McWhorter

In his late teens, pastor and author Rick Warren began to follow the 10/10/80 principle in his financial life: “Give the first 10 percent to God, save the second 10 percent for your future and then learn to live on the rest.”

As a result, he told Forbes.com earlier this year, his financial future was set long before his best-selling book, “The Purpose Driven Life,” was published in 2002. Unfortunately few young people have Warren’s financial discipline and many pay the price for their poor savings habits in their retirement years.

For recent college graduates and those in the early years of their careers, saving for retirement is often a low priority. 

“Young workers are more concerned with kick-starting careers, not ending them in the long-distant future,” writes Leslie Haggin Geary of Bankrate.com. 

Those early savings can make all the difference in later years, however, according to GuideStone Financial Resources. 

Consider this scenario, based on a hypothetical example from GuideStone. 

Sam and Teri are both 25 years old and just starting their first full-time jobs. Sam invests $250 each month in a retirement account that earns an 8 percent annual average rate of return. Teri waits 10 years before beginning to contribute the same monthly amount to the same fund. 

When Sam turns 65, those 40 years of savings will total nearly $900,000. Teri’s 30 years of savings will be less than half that — about $400,000. The difference? Compounded growth.

“The earlier you invest in a retirement plan, the more time you allow your money to work for you,” according to GuideStone. “Because of compounded growth, even modest contributions can build into large savings over time.”

Fidelity Investments suggests that by age 35, an individual should have his or her annual salary saved for retirement. Five years later, that savings should be twice one’s annual salary. By following these five-year goals, an individual would have eight times his or her annual salary by age 67.  

This is a minimum goal for retirement savings, according to GuideStone President O.S. Hawkins, since many in the industry suggest that retirement savings should equal 8–12 times final salary in order to replace 70 to 90 percent of pre-retirement income.

The failure to start saving early enough is one reason most Americans are ill-prepared for retirement, according to Lee Wright, coordinator of church compensation services for the Alabama Baptist State Board of Missions. He advises individuals, especially young people, to base retirement contributions on a percentage of income rather than a fixed dollar amount, which can make saving seem less intimidating. Saving a percentage has the added benefit of going up as income increases, Wright said.

Wright recommends 10 percent of monthly income going toward retirement as a starting point, but he said the goal is to start saving, even if the monthly amount is small.

“Start where you are able and increase your savings 1 percent per year until you reach your goal,” he said. “Then consider a second goal of 15 percent and work toward that contribution level.”


Sign up for your employer’s retirement plan, and contribute at least enough to get any match available. If no employer-sponsored plan is available, consider an IRA. Speak to a tax professional or a certified financial planner for advice for your individual situation.

Keep saving, and increase your savings rate if possible. It’s often quoted but true: You can borrow money for college, but you can’t borrow money for retirement.

Keep debt to a minimum or avoid it altogether if possible. Establish an emergency fund to help with unexpected expenses that might necessitate borrowing money otherwise.

Educate yourself. Use free resources like those available at GuideStone.org to see if you are on track with your savings.

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