I’m Still Young, Why Does Everyone Keep Bugging Me About Retirement?

The following post comes from the Military Saves blog. Follow them on Facebook and Twitter!

By Sandra Boenig, AFC®

You are probably hearing a lot about planning for retirement - there is so much information, so many ways to save, that it can be crazy and confusing. However, two simple concepts can help you save for ANY investment, including retirement. These concepts work even better if you start using them when you are young!

Dollar Cost Averaging

Making regular contributions over time benefits you, because you can take advantage of investment value fluctuations.  We don't know when the market will be up or when it will be down - with regular contributions you will sometimes get a bargain, and sometimes pay a higher price. However, in the end this can average out for you, without timing the market to get the highest rates.

The Miracle of Compound Interest

Compound interest is the idea that your money will grow over time - small amounts saved now can grow to much larger amounts in the future. Let's say you have just joined the military and you signed up for the Thrift Savings Plan (TSP).  You can invest up to $18,000 per year into your TSP account. Below are two scenarios of TSP savings; one of saving early, and one of putting off saving until later.

Young Saver: If you save just 10 percent of your gross pay ($200 for example) by transferring it to the TSP each month, after 20 years you will have saved $48,000. However, because you are also receiving interest on that money (let’s say 6 percent), you will accrue an additional $44,532, for a total of $92,532 at the end of 20 years.

Waited to Save: If you have been in the military 15 years, have contributed nothing to a TSP account, but want to start saving to catch up to the young saver, you would need to save $48,000 over the next five years. However, you no longer have the compound interest on your side; you will not have the same amount of money as the person who saved young, even though you saved the SAME AMOUNT.

By contributing $800 per month for five years at a 6 percent return you will have saved $48,000 of your own money, but will have only earned $7,891 from interest for a total of $55,891.

$44,532 is a lot more than $7,891, right?  To have the same amount of money over five years as you would if you had started at age 20, you would need to contribute about $16,000 per year.  (For illustration purposes we assumed that your pay stays exactly the same and that your rate of return doesn’t fluctuate.)

Want to do your own calculations? Try this one on the TSP website.

Sandra Boenig has worked for Military Saves, managed by the nonprofit Consumer Federation of America (CFA), which seeks to motivate, encourage, and support servicemembers and military families to save money, reduce debt, and build wealth. Learn more at www.militarysaves.org.

Take the Pledge

Savers who make a plan are twice as likely to save successfully. 

Take the America Saves Pledge

Tip of the Day

  • Written by Administrator2 | January 11, 2014

    Save your loose change. Putting aside fifty cents a day over the course of a year will allow you to save nearly 40% of a $500 emergency fund. http://ow.ly/sj972 

Saver Tips and Stories View all »

Transforming “I Can’t Save” to “I Will Save”

Written by Guest Blogger | January 13, 2016

You will not believe what it took to completely change my life. About three years ago, the HR Administrator of the corporation where I worked (as a temp with no benefits) forwarded an email to me. Fifteen seconds. One small act of kindness. That's it - that's all it took!

Read more...

#ImSavingFor Winner Story

Written by Lindsay Ferguson | June 13, 2019

America Saves awarded one lucky saver, Pedram R. from California, $750 for sharing his #ImSavingFor story. Pedram said, “Saving is important to me because it proves I am not willing to buy unnecessary things to please others or to be perceived as successful.”

Read more...

Saving is a Family Affair

Written by Guest Blogger | May 21, 2019

Saving is truly a family affair for Jeff’s household. During America Saves Week 2019, he pledged to save for retirement. But making a commitment and creating a plan to save isn’t a new concept for him.

Read more...

Receive Updates

Take the Pledge

Written by Super User | September 16, 2013

Start Saving

Receive Texts

Written by Tammy G. Bruzon | July 15, 2014

Learn More

Partner News & Updates

Written by Katie Bryan | October 18, 2013

Sign Up