My parents were hard-working first-generation Americans who were born during the Depression. My mother was a nurse and my father a businessman, and they were loving and supportive parents, but they were extremely frugal with money. “You’re only as rich as the money you have in the bank,” my mother used to say.
“If you save nothing, you have nothing.” When we were young, my brother, three sisters and I were expected to work, and save half of everything we earned.
That’s right – half. That seemed like a huge sacrifice, especially since my siblings and I worked during college to cover our expenses. I tried my best to put half of what I made at a string of part-time jobs into a savings account. Doing otherwise, I figured, meant I would “have nothing” now—and in retirement.
Of course, I know now that I don’t really need to “save half” of what I earn. But working in a business focused on retirement, I’ve learned that a lot of what my parents taught me was right — and many of their tips actually make it easier to save over the long term.
Not everyone grows up hearing about the importance of saving. Some, like me, got the message that it was a huge sacrifice. Others might need a nudge — and that’s why America Saves Week is so important. America Saves asks people to take the pledge to save for a goal that’s important to them, whether it’s paying down debt or getting ready for retirement.
Today, America Saves is focused on saving for retirement. To make the idea a little less daunting, I wanted to share some of what I learned from my parents. It all boils down to this:
- Start early. My parents got this right. It’s never too early to start saving: The longer your money stays invested, the greater the opportunity for long-term growth. I am glad I began saving in a 401(k) plan when I was in my 20s. But even if you don’t start saving until later, it’s better than not starting at all.
- Save regularly. Consider making the process automatic by regularly taking a set amount of money out of your paycheck and putting it into a tax-advantaged savings account, like a 401(k) or IRA. How much should that set amount be? At Fidelity, we suggest saving a total of 15% annually for retirement, including a company match or profit sharing if you have an employer-sponsored account such as a 401(k). For example, if you save 3% of your pay and your company matches that 3%, you’re saving 6% total, which gets you closer to that 15% suggested savings total.
- Every little bit counts. As your career progresses and your income increases, so should the amount of money you save for retirement. Fidelity suggests increasing the amount you save by 1% each year – so if you start out saving 6%, next year you would increase it to 7%, 8% the following year, and so on – with the idea of reaching 15%. Any time you get a raise, consider putting part of it toward retirement savings. See the difference a small increase can make with Fidelity’s Power of Small Amounts tool.
- Check in on the allocation along the way. It’s important to check up on your investments at least once a year to make sure they align with your goals, timeframe, and risk tolerance. And if you have questions or need assistance, seek it out.
- Be in it for the long haul. Saving for retirement is a long-term endeavor, but things happen along the way. To avoid tapping your retirement savings in an emergency, create a separate savings account for unexpected expenses like car or home repairs.
Ultimately everyone’s situation is unique, and what they need for retirement may vary. It’s key to be in it for the long haul and work toward saving Fidelity’s suggested 15% of your income (as opposed to 50%!). Keeping that in mind will help put you on the right track.
Jeanne Thompson is head of Workplace Thought Leadership for Fidelity Investments. Views expressed are as of the date indicated and may change. Unless otherwise noted, the opinions provided are those of the Jeanne Thompson and not necessarily those of Fidelity Investments.