Where will you be in 2027?

Wow that sounds like a long time from now. In 20 years I’ll be getting ready to retire (I hope!) Will I have enough to live comfortably the way I do today, or will the money I’ve saved only allow for a tent and a nice cot? (Maybe I can rent a patch of grass in my daughter’s back yard!)

I've also thought maybe I'll live with my friends and family in one of the "McMansions" that are being built now with so many spacious bedrooms and bathrooms. There's an article about homesharing in this month's Home & Family Finance on our website. I think it's an idea that really has some legs!

But if the idea of sharing a residence with your brother just sounds like a nightmare to you, you'd better start saving! Now's your chance to get a jump on your savings by putting your tax refund into your IRA. You may even get a tax deduction for it.

I know it’s tempting to spend your tax refund. But why not take at least part of it and put it away? The sooner you start saving, the more time your money has to compound, which is essentially just the effects of time and interest building up in your account.

Here’s an example that really hits home:
Look at this example: Say Frank and Mary start working for the same company in the same year, earning the same beginning salary of $25,000, with annual increases of 4%. If Mary starts a savings program immediately putting away 5% of her salary annually with no interruptions, earning an annual return of 8%, after 30 years, she'll have accumulated $230,150.
Frank decides to wait to start a savings program. If he saves 11% of his salary annually for the last 10 years before retiring, earning an annual return of 8%, he would accumulate $114,832.
So if you’re early in your career, there’s time to make some head-way. If you’re late in the game you might be playing catch-up. Still, the more you put away the better. It’s never too late to start saving.

It’s true, too. I didn’t start saving as early as I would’ve liked to. At age 25 I was more interested in buying cars and houses. It’s understandable! But as soon as I was eligible, I started putting some pre-tax dollars from my paycheck into my credit union’s pension plan for employees. The credit union matches part of my contribution - which helps considerably. I’m always amazed when I get my quarterly statement – it adds up so quickly and that’s with a modest risk in a modest market. If your company offers a pension plan, you’d be wise to participate in whatever way you can.

Don't let worrying about retirement ruin the fun of living now. You know you'll get by with whatever money you have. However, the more money you have the more choices you'll have on where to live and with whom. So if retirement worries you, make a pledge to put away some money this year.