[tom_ford]

At what age should people start saving seriously for retirement? Or is it about age in the first place?

Because when you're in your 20's and 30's, your focus is on starting a family, getting stable finances, building a house, getting the more essential insurance policies, etc.

 

[FrugalTrader]

It's all about how you want your retirement lifestyle to be which determines how much you'll need. The longer you wait, the more you'll have to save. From my experience, people get more serious about their retirement when they hit their 40's or so.

Yesterday was the best time to start saving, but today is the next best thing.

 

[Cal]

I think saving for retirement is also a career of saving, face it, most of us will be retired for as long as our work careers were.

Easier to make it a lifestyle thing, slow and steady, than to have any stress about it later in life.

 

[steve41]

The issue that most commentators neglect is that salary is not merely a function of inflation. Career enhancement means that your particular salary increases at a (sometimes much) greater rate than inflation.

If you run a needs-based projection (meaning your lifestyle or 'beer&grocery' consumption remains constant over time), then you generally start your working lifetime at a small savings rate, increasing as your salary outpaces inflation and your mortgage gets paid off.

Most plans I have observed start with low savings rates and increase to a maximum just prior to retirement.

 

[MoneyGal]

I like what Steve says -- and I'd emphasize that a high savings ratio in later years should not, IMO, be confused with the idea of funding a high retirement replacement rate.

Lifecycle investment theory suggests that when you are young, you already have a bunch of saved (illiquid) capital, your human capital.

But because this capital can only be monetized over time, slowly, the spending and savings approach that makes the most sense is to have relatively smooth consumption over your lifetime.

IOW: You save little in the early years when you are getting established, and lots in the later years when the value of your human capital has declined.

But this high savings rate in later years doesn't mean you "need" some 60% or 70% of your pre-retirement income in retirement -- instead, you should aim for a smooth consumption rate over your lifetime, which might be only 30% of your pre-retirement income.

 

[Ben]

But this high savings rate in later years doesn't mean you "need" some 60% or 70% of your pre-retirement income in retirement -- instead, you should aim for a smooth consumption rate over your lifetime, which might be only 30% of your pre-retirement income.

I like the idea of a smooth lifetime consumption rate. If in 50 years I look back and have achieved this (more or less), and have enough funds remaining to leave the "legacy" I desire, I'd be pleased.

On the original question: "At what age should people start saving seriously for retirement?"

I think it depends on what we want to define as "saving for retirement".

If we mean this in the "investing" sense, then I'd argue that one could have excellent success by eliminating all debt before investing. Therefore, the age at which you become debt-free could also be the day you start "saving for retirement", or investing.

If we define "saving for retirement" as being the same as "building net worth", then I'd argue that no time is too soon to start saving for retirement - yesterday would be good. In this definition, net worth growth through any type of debt reduction or asset accumulation can be considered "saving for retirement", as this net worth can, in general terms, be monetized into retirement income.

Under the "building net worth" definition, how much to save should be qualified as well: on the one extreme you can live like a pauper for 20 years, accumulate a lot of wealth at a young age, and retire. On the other extreme, you can spend every cent you make, and work to the day you die heavily indebted. Neither of these options makes a lot of sense, and most of us strive to walk the middle ground, referring back to the smooth lifetime consumption concept.

Personally, I prefer to front-end load my saving now while I am young and have the capacity, so that it frees up more options and reduces financial stress in mid-life.

 

[specialk]

Now.

 

[leslie]

I agree with Ben. In contrast to the academic premise that "young people spend a lot and have low income, therefore bulk savings only happens later in life"..... it was my personal experience that living cheaply was A LOT easier when I was young. 90% of my savings happened before I was 35. So excusing yourself until you are older doesn't wash with me.

But a lot depends on your choice to marry, have kids, start a business, etc. So none of us can comment on that.

I also side with the all savings that result in "increase in wealth" is "savings for retirement". When you are retired it does not matter what pot of value you use to live on. So the question does not really make sense.

 

[MoneyGal]

Interesting discussion. I'm the one who raised lifecycle and human capital thinking, so I will continue from that perspective.

The issue of "saving for retirement," as has already been pointed out in this thread, can involve building wealth, avoiding what economists would call "dis-saving," (= taking on debt), and, finally, actually putting money aside, whether in stocks, bonds or some other instrument.

The issue of whether you can "save more" when young or old, for lifecycle economists, is broader than whether you are actually putting money aside. In general, from the lifecycle perspective, most people will have a greater capacity to "save money" when they are older, and they will have greater dis-savings (debt) when they are younger -- whether it is mortgage debt or student loan debt, to give the two biggest examples.

I, too, saved most of my money in my 20s, before I had kids. But I also took on my biggest financial commitment then, a mortgage, which is a big amount of dis-savings for me.

I'm not disagreeing with you, Leslie; at least not intentionally -- it just seems to me that if you accurately value the balance sheet of an idealized young person, with debt and a large human capital balance, versus an idealized older person, with a somewhat depleted human capital balance, ideally much less debt, and ideally greater yearly cash flows from their human capital, then it is clear the older person has a greater capacity to save (if you define saving as putting money aside.)

(If you define saving as building up an asset you can monetize slowly over time, then perhaps the time of greatest savings is when you are in post-secondary education.)

If you keep spending at a constant $50,000 per year, for example, the idealized young person will likely need to borrow to sustain that level of spending -- while the ideal older person would have the capacity to save a large fraction of their income.

So, it isn't about "excusing people for starting late" -- at least for me -- it is about keeping your lifecycle spending smooth over time.

 

[tom_ford]

Wow, I didn't expect to get all these 'intellectual' responses and analyses.

I believe that when you are a lot younger, everything that you earn from working goes to all the expenses for your family (monthly groceries, clothing, baby stuff, etc.), to your mortgage, to buying appliances and whatever makes living comfortable and convenient, to your insurance (medical, dental, life, auto, home, etc.), etc. MOst often, nothing is left. That is something I feel most people have a hard time dealing with. Sometimes I can't help but think that you need a really high salary or another income source for you to be able to live the kind of life you want when you're already retired.

My idea of retirement is living for myself....traveling places I never got to visit when I was working my butt off, devoting my time to my passions -- like photography and painting -- instead of staring at the computer all day long, reading books, etc.. How do I make sure I get to do all these and not worry about whether I still have food on my table the next day? Sometimes the thought is just too frustrating. I know this is also what most of us want for our retirement days, but how many can afford this kind of lifestyle?

 

[specialk]

Wow, I didn't expect to get all these 'intellectual' responses and analyses.

I believe that when you are a lot younger, everything that you earn from working goes to all the expenses for your family (monthly groceries, clothing, baby stuff, etc.), to your mortgage, to buying appliances and whatever makes living comfortable and convenient, to your insurance (medical, dental, life, auto, home, etc.), etc. MOst often, nothing is left. That is something I feel most people have a hard time dealing with. Sometimes I can't help but think that you need a really high salary or another income source for you to be able to live the kind of life you want when you're already retired.

My idea of retirement is living for myself....traveling places I never got to visit when I was working my butt off, devoting my time to my passions -- like photography and painting -- instead of staring at the computer all day long, reading books, etc.. How do I make sure I get to do all these and not worry about whether I still have food on my table the next day? Sometimes the thought is just too frustrating. I know this is also what most of us want for our retirement days, but how many can afford this kind of lifestyle?

If there is nothing left after all that stuff, then you need to do a better budget and back off most of that. For example, don't get a car payment, and babies don't cost as much as it's hyped up to be...you spend thousands on toys and crap and they just play with your keys, for example. If you live frugally, you should have enough money to invest a bit and spend a bit.

 

[steve41]

It would be interesting to know just what each individual saves for retirement as a function of time. I am sure that the feds must historically track RRSP contributions for each taxpayer. My guess is that in the early stages, savings levels are small to non-existent, and that the major investment activity happens in a flurry in the last 10-15 years of working.

It would make sense that these statistics wouldn't be made public since both the gov't and the investment industry want to encourage savings as early as possible. (My opinion and from observing a lot of financial plans)

 

[specialk]

It would be interesting to know just what each individual saves for retirement as a function of time. I am sure that the feds must historically track RRSP contributions for each taxpayer. My guess is that in the early stages, savings levels are small to non-existent, and that the major investment activity happens in a flurry in the last 10-15 years of working.

It would make sense that these statistics wouldn't be made public since both the gov't and the investment industry want to encourage savings as early as possible. (My opinion and from observing a lot of financial plans)

Ya my assumption would be a bulk of it being last minute panic.

 

[Maltese]

If there is nothing left after all that stuff, then you need to do a better budget and back off most of that. For example, don't get a car payment, and babies don't cost as much as it's hyped up to be...you spend thousands on toys and crap and they just play with your keys, for example. If you live frugally, you should have enough money to invest a bit and spend a bit.

What is left is going to depend on how much income the family has to spend. A family earning $40,000 is likely going to need most if not all of their funds for everyday expenses. The family with the $150,000 income has a lot more disposable income. Many seem to forget that high incomes are not the norm when it comes to every day people.

 

[Berubeland]

What is left is going to depend on how much income the family has to spend. A family earning $40,000 is likely going to need most if not all of their funds for everyday expenses. The family with the $150,000 income has a lot more disposable income. Many seem to forget that high incomes are not the norm when it comes to every day people.

I disagree entirely that low income people cannot save. Savings is a function of spending less than you make. Low income is an excuse. Conversely there are plenty of people who make lotsa dough than don't save a dime.

I agree though that high incomes are no the norm. Also 50% of people have below average IQ's

 

[specialk]

I disagree entirely that low income people cannot save. Savings is a function of spending less than you make. Low income is an excuse. Conversely there are plenty of people who make lotsa dough than don't save a dime.

I agree though that high incomes are no the norm. Also 50% of people have below average IQ's

Exactly. I agree. My wife and I have a combined take home just under 50,000...so yes...we get it. Despite this fact, we probably have a much more stable financial picture than most co-workers, as well as higher income earners. We were once 70,000 in debt when we were in stupid mode and we are now debt free and building our emergency fund. Our expenses have been cut to nothing to make this happen.

 

[Jon_Snow]

My wife and I are 37, and from all appearances we wouldn't appear "well off" to anyone. Certainly, we could live a much higher standard of living if we chose to. Instead, we live below our means without depriving ourselves excessively... by following this path I think retirement in our mid 40's is quite possible.

With a monthly income of approximately $8000 we manage to save about $4500 - $5000 per month. This adds up quickly and watching our savings grow at this rate more than offsets the dissapointment of not buying some of the new things we desire. Buying a new house with a big mortgage would really put a dent into our savings rate... so we will stay in our 900 sq. ft condo.

 

[steve41]

I don't know what you already have saved, but if it was zero and you were just starting out, retiring at 45 would just squeak out a combined after tax lifestyle of $33K which just bridges you out to 60 when your CPP/OAS kick in.

Many would find an after tax income of $33K to be quite comfortable.

Dying broke at 95, 2% inflation, 6% ror.

 

[Jon_Snow]

I don't know what you already have saved, but if it was zero and you were just starting out, retiring at 45 would just squeak out a combined after tax lifestyle of $33K which just bridges you out to 60 when your CPP/OAS kick in.

Many would find an after tax income of $33K to be quite comfortable.

Dying broke at 95, 2% inflation, 6% ror.

Fortunately we already have approx. $200K in our "retirement savings" fund... our tentative plan would be sell our condo (similar units are fetching $300k in our complex) and move to our acerage in the Gulf Islands, which we own outright. If we can maintain our income and keep saving at our current clip, we should add another $600K-$700k to our portfolio over the next ten years.

Even using conservative investment vehicles, I don't see why we cannot achieve a portfolio in excess of $1.2 million in ten years.

The very idea of retirement at 47 puts a smile on my face... of course if one or both of us lost our jobs it would pretty much torpedo these grand plans...

 

[OhGreatGuru]

At what age should people start saving seriously for retirement?

According to my soon-to-be-patented Decisive Optimum Planning & Extrapolation (DOPE) model, the optimum time is 47.3 years before you plan to die.