Are you convinced you can’t afford to save for retirement until you make “just a little bit more”?
That mindset could get you into a whole heap of trouble, based on the earnings patterns of over 200 million U.S. workers from 1978 to present.
Researchers at the Federal Reserve Bank of New York dug through historical earnings records and found that earnings peak, not toward the end of your career, but closer to the middle.
So if you’re waiting until your fifties to start saving, you could be making a monumental mistake.
“Most income growth occurs early in working careers, and that income growth flattens out—or even declines in real terms—by the early fifties,” summarizes journalist Mark Miller, who frequently writes about retirement and aging.
That’s a pretty convincing reason to start saving as soon as you get your first job. Counting on a much bigger salary down the road may be unrealistic for most people.
We’ve seen this happen all too often in real life. We used to work with a South Florida couple (they’ve since left the area) who made a very healthy income by most people’s standards. He was a health-care executive and she ran her own consulting business.
But whatever they made, it was never enough. We worked out a plan to help them reach their retirement goals, and computed how much they needed to save each year.
But there was always some excuse not to save. They bought a new (and more expensive) home. Her business hit an unexpected rough patch. Their daughter switched from a state university to a much more expensive private college. They were setting aside tuition for their son, still in high school. Then it was time to remodel the kitchen.
All good things, but the point is, they seemed to have time and money for everything … except saving for the future.
And then, of course (Murphy’s Law), things went really wrong. The husband went through two lay-offs in his 50s and spent months finding another job. Her business income was gutted by the 2008 recession. They struggled to pay their (way too big) mortgage, and ended up having to sell and downsize.
Don’t expect your salary to keep climbing into your fifties. More workers are experiencing middle-age salary declines due to job lay-offs, and even if your salary does grow, your expenses will too.
The moral of the story? Don’t put off saving for tomorrow, because tomorrow may never come.