Wait until 35 to save!

[traineeinvestor]

Somehow, I don't think this paper was written with early retirees in mind.....or anyone who lives in the real world for that matter: Investors Chronicle - Academics say wait until 35 to save

London's CASS Business School issued a paper suggesting that people shouldn't start saving until they were 35 and should focus on large contributions after age 55!

Given that even the authors admit to the proposal being flawed, I have to wonder why they bothered publishing in the first place?

 

[Leonidas]

Given that even the authors admit to the proposal being flawed, I have to wonder why they bothered publishing in the first place?

It does seem to have some blindspots, and the columnist did an excellent job in exposing those, but I didn't see where the authors admitted to any flaws. Am I missing that part?

 

[traineeinvestor]

It does seem to have some blindspots, and the columnist did an excellent job in exposing those, but I didn't see where the authors admitted to any flaws. Am I missing that part?

I took this as the confessional - possibly reading too much into the sentence:

Even Professor David Blake, director of the Pensions Institute at Cass, admits: "I doubt that most people would have the will power to maintain such high contribution rates towards the end of their working lives".

 

[Gumby]

It seems to me that this approach flies in the face of normal human behavior. If you spend all your income when you are young, you will become accustomed to spending all your income and it will be difficult to start saving later. In my view, saving behavior needs to be cultivated over an extended period before it becomes a habit.

 

[obgyn65]

I agree with Gumby here.

In my view, saving behavior needs to be cultivated over an extended period before it becomes a habit.

 

[Moemg]

Truthfully I never thought about seriously saving until I was 33 . That is when I became a single Mom and the reality of two college educations and retirement hit me . It worked out fine .I paid for one MIT education and one U of Mass education and partially paid for BU graduate school and still made it to retirement at 59 .

 

[MichaelB]

In contrast, Cass's paper, based on "optimal" lifecycle financial planning behavior, found that, "surprisingly, it is not optimal for individuals to start contributing to a pension plan until several years into their career. This is because individual's incomes are initially low and they are better off consuming their incomes rather than saving from them."

So, save less when you make less and then save more when you make more. And if you don't make more, well, better luck next time. My grandfather would have said "if it sound kind of dumb, it probably is..."

 

[growing_older]

So this seems to be a key part of the problem:

For a start, not everyone has a salary that rises during their working life. Plus, many professionals who would expect to be high earners during later life are unexpectedly made redundant in their 50s

If you have saved earlier, then you at least have some options. If you have waited to start saving and have nothing, you may have very limited options.

 

[rescueme]

Truthfully I never thought about seriously saving until I was 33 . That is when I became a single Mom and the reality of two college educations and retirement hit me . It worked out fine .I paid for one MIT education and one U of Mass education and partially paid for BU graduate school and still made it to retirement at 59 .

Talk about matching stories. DW/me started saving/investing for retirement at age 34 (1982) when our respective companies eliminated their defined benefit (e.g. pension) plans for the "improved" 401(k). We also started our indivudial IRA's at that time.

Like the article, we increased our contributions along the way, from the minimum to more than a third of our combined gross salaries a decade before our planned retirement (like you, at age 59). Remember that we did "lose" since we were not investing at a high rate for the early years, but we did make up a bit since we increased our rate of contributions, based upon a much, much higher income in the later years.

It worked out well, and we didn't even need an article to guide us ...

 

[Brett_Cameron]

I started saving at age 33 in 1989 and retired at 55 in 2011. I wish I had started saving earlier but it worked out OK, so far.

 

[foxfirev5]

The fact we didn't have the resources at an early age delayed us a couple of years. I started my 401k at age 25 and always put in as much as possible. With three kids it was definitely easier to save later but that wasn't our nature. I can't imagine delaying savings and thinking you'll make it up later. It looks like we already have a majority of the population on that plan and I'm not seeing great results.

 

[donheff]

Dumb article. Spending a few extra bucks early in your career doesn't make much difference in your early life style (unless you are really on the edge in which case the matter is academic since you will not save in any event). But compounding of early years' savings makes a big difference at retirement.

 

[martyb]

Truthfully I never thought about seriously saving until I was 33 . That is when I became a single Mom and the reality of two college educations and retirement hit me.

Same here, except I became a single Dad at 29, with 2 very young (17 months & 4 yrs) little girls, and didn't have anything left to save for the next several years. Just barely scraping by. I thought about wanting to save, but the $$ just wasn't there. So.....fast forward to my mid-40's when I could finally begin to put a few pennies away. Now, maxing the TSP for a few yrs, plus Roth IRA, plus new (since 1996) wife's 401k plus her Roth, plus my upcoming federal CSRS pension, plus my military reserves retirement that kicks in at 60, and we'll be ok. Not wealthy, but ok and at least financially secure. I daydream though, about how much further along I'd be if not for the divorce in 1986. That really set me back, but of course I wouldn't trade all that great time with my kids for anything. I stayed a single dad for 10 years and it was extremely rewarding in that regard.

 

[East Texas]

It seems to me that this approach flies in the face of normal human behavior. If you spend all your income when you are young, you will become accustomed to spending all your income and it will be difficult to start saving later. In my view, saving behavior needs to be cultivated over an extended period before it becomes a habit.

+1

 

[Andre1969]

I tried to start saving when I was younger, but didn't really hit my stride until, ironically, around 35. I blew a lot of money in college, bought a condo at too young of an age, got married and went through a bad divorce, and spent a couple years getting the debt paid down. Once I got that paid down, at the age of 28, I started investing again. But it wasn't until I turned 34, when I started reaching a higher salary, took in a second roommate, and then unloaded my condo (I was juggling a house and a condo concurrently for about a year), that I was really able to start investing, big-time.

 

[donheff]

Truthfully I never thought about seriously saving until I was 33.

Same here but it wasn't because I was thinking.

 

[Walt34]

It wasn't until after my divorce in my mid-30's that I started even seriously thinking about retirement. I had bought a brand-new 1985 pickup truck (in hindsight not the smartest thing, but far from the dumbest thing I've ever done) and a $94k house.

So in early 1986 there I was with an income of $40k/year, six figures in debt, and it dawned on my that I'd be eligible to retire in 11 years. Now, I had an "escape plan" that is rarely available anymore and that is a COLA'd pension and medical coverage for life after retirement, but the pension at the time was scheduled to be 50% of the last year's earnings after 25 years, going up 2.5% for each additional year until 35 years where it maxed out. As it turned out the pension changed for the better and I went out at 70% after 29+ years.

So I figured I'd be okay in retirement, but I'd better have everything paid off or nearly so by the time I pulled the plug. And since I lived in a high-cost area I figured the sale of the house would give me the option of buying another place in all but a few more expensive places, which I wasn't interested in anyway. The house sold for far more than I ever thought it would.

Given the changes in the economy I wouldn't recommend that strategy to anyone now.

 

[walkinwood]

This is what happens under the publish or perish pressure. Hogwash!

 

[SJ1_]

It seems to me that this approach flies in the face of normal human behavior. If you spend all your income when you are young, you will become accustomed to spending all your income and it will be difficult to start saving later. In my view, saving behavior needs to be cultivated over an extended period before it becomes a habit.

I was just about to post that thought. "If you spend all your income when you are young, you will become accustomed to spending all your income and it will be difficult to start saving later.'
worth repeating

 

[sheehs1]

My twenties feels like the "lost decade" regarding saving for retirement. Our parents never talked to us about finances or saving for "retirement". I was just barely making it on my salary as a medical researcher. Divorce and becoming a single parent at age 32 woke me up. That is about the time I really started...but even with that...I was not able to really save the larger buckets until the salary went way up. High salaries for those of us without pensions or defined benefit plans....seem to be key. Without it...I doubt I'd be where I am now. I started educating our children early on about saving for retirement as I am sure others here have done.

 

[SteveR]

I could not save for retirement ( or for anything else for that matter) until after my divorce when I was 42. I managed to save enough and invest enough to retire at 55. It was tough but I knew my body and mind would not last in my chosen career to age 65. FIRE was my way out and the work and sacrifice was well worth it.

My kids-in-law still have not gotten the message despite my "preaching" to them about the evils of living paycheck to paycheck. One is finally starting a savings/investment plan...the other just can't do it...no discipline to stop the bleeding...gotta live for today..gotta have all the toys and other status items. BS I tell them...you don't have a plan for your kid's education...I am not going to foot the bill for your lack of savings...I will help but not do the whole job; you have no savings..no retirement plans other than the minimal the company puts in your 401k and you don't even fund it yourself. Makes me burn....

 

[ziggy29]

Divorce and becoming a single parent at age 32 woke me up. That is about the time I really started...but even with that...I was not able to really save the larger buckets until the salary went way up. High salaries for those of us without pensions or defined benefit plans....seem to be key. Without it...I doubt I'd be where I am now. I started educating our children early on about saving for retirement as I am sure others here have done.

I was fortunate in that I didn't trust employers or the government to take care of my retirement even before I was 25 -- this all the way back into the 1980s. Even then, I thought demographics were going to put the hammer down on those of us at the tail end of the baby boom. I put 12% or more of my pay into my 401K every pay period, even when it really hurt and all my friends were "living it up" more, and eventually started earning enough to max it and two Roth IRAs for my wife and me which we've dutifully done for many years now. It was only because I learned the discipline so early, IMO, that we have a chance to retire early without employer-provided health insurance and only a puny (frozen) pension.

Had I not done these things, had I not adopted the cynical Generation X mentality about employers and government taking care of me in old age, once they took retiree health insurance away and froze my pension in my early 30s, I might be working until I'm dead. But as it is, even if they water down or means test my SS and with my tiny frozen pension, I should be able to get out by 55, maybe earlier -- and almost all of this was from adopting a LBYM attitude and saving for retirement until it hurt, even in my 20s. People in my situation who trusted the institutions to deliver on the promises we were given when we started working -- and thus didn't bother saving -- may never retire. That's the new reality, and younger folks don't have to like it (and we shouldn't) -- but it is what it is and we can either stay down and accept defeat or get off the mat and redouble our determination to beat the worsening odds.

And I would suggest that any younger person who doesn't want to work until they die or become disabled assume *zero* from your employer pensions, health insurance and SS**. Yes, even those of you who have public sector pensions planned; if they can be taken away from the private sector as most have been, they can be yanked from the public as well. Yes, you may get something and I hope you do, but the less you *assume* you'll get while you're young, the more likely you will still be to retire even if these things are taken from you -- and if they aren't taken away, it's just gravy.

** -- note: I'm not making a political statement about thinking I'll get no SS. But for planning purposes I err on the side of being conservative, and that means saving enough that I can still retire even if I, my generation or future generations get the considerably worse deal I think we will see.

 

[Helen]

London's CASS Business School issued a paper suggesting that people shouldn't start saving until they were 35 and should focus on large contributions after age 55!

So many people lose their jobs later in life or have health problems and have to retire early. Waiting for the end of the career to save the bulk of retirement money is pretty risky.

That being said, I didn't start saving until I was about 34. Once I started saving though I went gung ho. God forbid I'd do something in moderation.

 

[Independent]

I've always been skeptical of the "start saving when you're young" preaching. The issue is how you define "saving". I think that paying down debt comes before buying stocks (and long before buying bonds).

If I define paying down debt as saving, then saving should start as early as possible.
But, if I only define buying financial assets as saving, then I say wait until you're out of debt.

If I were trying to give good, simple advice to young people (as if they'd listen), I would say to focus on your ODD - that's the Outta Debt Date. You want to move that forward, and to do that you need to not take on a new debt when you pay off the old one. (e.g. I didn't buy a new car when I paid off the loan on my first car. I drove it until I could pay cash for the replacement.)

I know this will start the usual "Is it better to pay off the mortgage or to add to your 401k?" debate. All I can say is that I'm on the side of pay off the mortgage with anything that the employer won't match.

(I understand the professor's point that if you can count on rapidly increasing real earnings early in your career, it can make sense to enjoy all your limited early earnings. But the world is so uncertain that I wouldn't take that risk.)

 

[Gumby]

I have long been a proponent of applying your dollars to that which will give the greatest return. If it is paying debt (x % risk free) versus saving/investing (y % with some risk), you need to evaluate the risk and act accordingly. When I was in my 20's, I was fortunate to not have debt. Even though my pay was meager, I always saved a little of it. It was a good habit to develop.