My husband and I recently bought a home in a New York City suburb.
When we began the process of applying for our mortgage, we were asked to submit a boatload of documents and paperwork. We each handed over two months worth of pay stubs, three years worth of W-2s, about a dozen quarterly bank statements, letters confirming our employment, retirement account balances … and the list goes on.
We spent a few days getting everything together and then dedicated one Sunday afternoon in early April to scanning and emailing everything over to our soon-to-be lender.
Before I sent the email, I carefully looked through each and every document once more to confirm we had everything they were asking for.
Yup … ok … perfect … wonderful … great … WHAT?!?!
When I looked closely at my husband’s 401(k) statement, showing his retirement savings, I was shocked to see the number at the very bottom.
We had both started working and contributing to our retirement accounts around the same time (late 2010) and we earned about the same amount of money — so how on earth was his balance so much higher than mine?
Tyler (my husband) and I are very open with each other about our finances — so I always knew he contributed a larger percentage of his pre-tax income to his 401(k) than I did. But I had never realised just how much more money he was actually saving until I saw the balance.
While I had been contributing anywhere from 2% to 4% of my pre-tax income to my retirement account since I started working, he had been contributing between 8% and 12% — increasing his contribution by about 1% each year.
That led to a pretty big disparity between his balance and mine over the six-year span. He had saved about three times what I had, to be exact.
Seeing those numbers side by side was a huge wake-up call for me. I thought about our future. I wondered, If that gap is this big now, what will it look like in 40 years?
I knew if I continued contributing and saving the way I was, he’d be in way better shape come time to retire.
Sure, that’s still years away — but I know from reading about saving for retirement that what you do and how you save when you’re young has an immense impact on things later.
I felt silly for once feeling so proud of myself for contributing anything. I had thought, Oh, how responsible of me! But I now realised it simply wasn’t enough.
I knew right then and there I had to re-evaluate.
I sat down, did the maths, figured out what I could afford to contribute without feeling strapped for cash each month, and increased my contribution to 8%. I also checked off that little box next to the question on the website about whether I’d like to automatically increase my contribution by 1% each year. Now I don’t even have to think about it!
As Business Insider’s Libby Kane recently pointed out, in order to finance 20-30 years post-work — operating on about 70% of my former annual income (at least) — I should be contributing 15% of my pre-tax income starting at age 30. (I just turned 28, so I have a couple of years to work my way up to that number.)
She says, according to T. Rowe Price, increasing my contribution to 15% could help me save about $600,000 more by age 65 than I would if I contributed just 10% of my income.
Sure, upping my contribution now makes my paychecks a bit smaller (maybe I have to skip a dinner out every now and then, or hold myself back from buying those sandals I’ve been eyeing) — but I’m sure I’ll enjoy that extra $600,000 more than I will those shoes I’ll probably wear twice.
Watch out, Tyler: I’ll catch up before you know it!
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