There's a retirement secret almost no one talks about: front-loading. Front-loading is the process of tackling the hardest task first. It’s normally touted as a productivity hack, but it’s also a great money hack. Saving money for retirement is hard. A finite amount of money in your bank account must fund a variety of long-term and short-term goals. But if you prioritize doing the hard thing — saving for retirement — now, you won’t have to worry about it as much in the future.
Here’s how it works: If you save aggressively for retirement in your 20s and 30s, you may be able to stop saving for retirement in your 40s and 50s and still retire with more than enough money in the bank. Even if you don't want to stop saving altogether, you might be able to significantly decrease your retirement account contributions as you age thanks to the power of compound interest and time. The best part? By saving for retirement now, you’ll give your future self the best gift: options.
The only requirement for front-loading your retirement? Save now. Here's how to make it happen, even if you feel like you’re too broke to save.
Do the math and get excited
The first step to front-loading your retirement savings is understanding the math of compound interest over time. It’s important to understand the math because it will help you get excited about saving, which will inspire you to save even more.
Ben Huber, a 29-year-old money expert at Dollar Sprout in Blacksburg, Virginia, said, “Let’s look at two imaginary examples for a new grad straight out of school with a gross income of $48,000 per year. If you start setting aside 10% of your monthly income with an initial deposit of $400 at 23 years old and assume a 6% annual return in a tax-deferred account, you’d be looking at approximately $875,000 in retirement at 65 years old (assuming you didn’t obtain a raise for your entire working career).”
But what if you didn’t start saving immediately after college and waited a few years? The numbers might look different.
“Here’s the second imaginary scenario: You start setting aside 10% of your monthly income with an initial deposit of $400 at 28 years old. Assuming all other variables remain unchanged (except you started 5 years later), you finish at 65 with $634,000. You would lose out on nearly a quarter-million dollars merely because we weren’t exposed to the market earlier and didn’t let compound interest work for you over a longer period of time,” Huber said.
Doing the math, playing with the numbers and calculating potential scenarios is a great way to get motivated to save. If you haven’t started saving for retirement yet, there’s no need to beat yourself up. Let the numbers serve as inspiration for your financial future.
Start small & grow
Here’s the truth — your salary will likely be lower at the beginning of your career than it will be toward the end of your career. That doesn’t mean you can’t save for the future now. It’s okay to start small and grow your retirement contributions over time. The important thing is that you start and that often involves taking a hard look at your current finances.
“Do a serious review of your spending and consider what expenses may have become ‘needs’ when they should really be ‘wants.’ Don't cut every fun expense, but take the time to reflect on what truly makes you happy and don't spend money on things that don't. If you still don't make enough to save, consider a side hustle to help you front-load your savings until you advance in your career,” said Chelsea Brennan, a 28-year-old finance writer and former hedge fund manager in Connecticut.
One of the most important aspects of saving for retirement early in your career is building a lifelong habit that will continue to serve you.
“Get in the practice of saving early, even if it is a small percentage of your gross income. The reason for this is because it fosters a great mindset for allocating your resources appropriately, exposes you to the world of investing earlier in life, and gets you accustomed to living within your means at a lower take-home pay point,” Huber said.
Keep learning (and read the fine print)
Saving for retirement is typically a lifelong process and as discussed, the most important step is getting started. But even after you start saving, there will still be a lot more to learn. One of the most important things to learn might be the additional benefits offered by your employer.
“Make sure to explore your company’s available retirement benefits. Don't just gloss over them. If your company offers a match, ask an adviser (internally or externally) about the best way to take advantage of the program. A match is effectively free money so try to ensure you're doing everything you can to get the most out of it,” Huber said.
Just because you’re planning for your future doesn’t mean you need to become obsessed with checking your accounts or projecting calculations. In fact, Brennan said, it’s often in your best interest to let it be.
“Don't check your accounts too often. Stocks are volatile and your account value will go up and down over time. If you spend too much time looking at the balance, you're far more likely to fiddle with it at the wrong time.”
Saving for retirement is a long journey and there is a lot to consider, but getting started with saving for your future is always an excellent first step. The best part? Your future self will thank you.
Don't forget: Your future self still has to pay for health care costs. Find out how much you should set aside.