Don't Panic Now, But Prepare to Make up for it Later

It may not be as bad as you think.

I know that I’ve been rather hard on you. I keep insisting that you carve out retirement savings as a portion of your budget from the moment you get your first paycheck. And yes, I want you to continue funding it through marriage, kids, college, and all the other expenses of life. Succeeding in this means you have to cut back on something else, some other part of your lifestyle when additional expenses come to bear.

Frankly, most of you don’t do that. And, to a limit, that can be quite okay.

Now, don’t expect me to come down off my soap box anytime soon, but let me take a breather, sit on that box, look you in the eyes, and tell you that you are probably not doomed to eating cat food for much of your senior life.

When you enter the workforce after college or other training that you receive, you are used to living on pretty much nothing. It can be a quite wonderful time of your financial life. You’ve got more income than you ever had before and hadn’t yet built up much of a standard of living (expenses). Saving is rather easy.

This is when you can probably put quite a bit away for a future wedding, house, car, and yes, retirement. In order to do this, you have to be sure that you didn’t leave college with a larger debt burden than you could easily fit into your initial earnings, and that you keep spending in check. The credit cards should never carry a balance from one month to the next.

Then come the kids. They tend to suck ever increasing amounts of your budget from you, culminating with four or more years of college. Sure you are probably getting raises, but it is likely that your budget gets squeezed beyond what your paycheck can make up for. You begin looking at how to make ends meet. The academic financial planner will say that you cut back on everything but your savings. Reality is quite different.

The key to making it through this phase is not to increase your lifestyle (other than the kids) unless you first add back in your retirement savings or have a boost in income. No credit cards to fund that trip you always wanted or loans to buy a new car when a used one works just fine. By not accumulating debt and by not increasing your spending, you’ll be able to recover from underfunding your retirement savings.

That is because once the kids are out of the house (it helps if they stay out) you now can direct the money you were using to support them to turbo charging your retirement savings.

To do this right takes a lot of discipline. You are shifting some of your savings to your lower expense years. Debt is your enemy and a lifestyle expansion (spending increases) must be covered by additional income.

Still, at least there is an alternative that doesn’t involve cat food.

This article was published under the title "Discipline needed to avoid tuna in old age" in the Wichita Falls Times Record Newson January 27, 2013.