You Don’t Need to “Save” That Much for Retirement

You don't need to save that much for retirement - if you do this one thing.

If you’re a millennial on Twitter, you might have seen this retirement-planning tweet quoted with some pretty epic snark attached to it.

It got such a reaction that it was a Twitter Moment and everything. Let’s just say, people were not pleased.

And I get it—the idea of saving that much strikes a nerve for a lot of people.

There are structural issues that can prevent you from saving that much, like bananas-high rent prices in major cities, and struggles finding full-time, well-paying employment.

Thanks, the economy.

There are also life choices that can seriously hamper that timeline—one that came up in my Twitter mentions was pursuing a career as a doctor. Duh, if you’re still in school at 30, this is also probably not a realistic plan!

But even for people who got a full-time job right out of undergrad, hearing that you should have 1x your salary saved by the time you’re 30 can seem impossible.

I should know, because even as a money blogger and dedicated saver, I won’t have done it, and only have about a year left until the big 3-0.

The good news is, you don’t have to save that much.

Let’s say you’re a new grad, 22 years old, and you’ve just landed a job that pays $40,000.

You’re not swimming in money, so when you hear that you need to save $40,000 over the next eight years, and think about carving $416 out of your monthly budget to hit that goal, you (somewhat reasonably) decide to tweet something snarky and do nothing instead.

Because that’s about 20% of your take-home pay.

Luckily, you don’t need to save that much—even if you do want to have $40,000 put away for retirement by the time you’re 30.

Nope, you only need to save about $300 a month to hit that goal. Still a stretch goal, especially in expensive cities, but here’s the big difference.

You don’t need to save it—you need to invest it.

When you rely entirely on your savings to hit those retirement targets, of course it’s going to feel like an insurmountable number—especially in later decades, when that 1x multiplier turns into a 3x multiplier (hello, 40).

But if you invest your money, it will do some of the work for you. (And it’ll do more work the longer you invest.)

I was late to the game on this, and for the first three years of my career, my RRSP and my TFSA sat in a sad, minimal-interest-earning savings account. I think I earned less than a total of $2 interest in those three years.

So yeah, saving up a full one year of my salary by the time I was 30 seemed ridiculous, and that’s as someone who was saving almost the recommended 10% of my pre-tax income!

But then I started investing.

Once I finally got my act together and invested my money, my entire view on those guidelines changed, because it wasn’t just about how much I was saving anymore.

Even though my first six months in the market were brutal (like, invested right before a downturn brutal) I was prepared to be in it for the long haul and kept investing every month like clockwork.

These days, I’m up thousands of dollars—which are thousands I didn’t have to save.

Thanks to the fact that my retirement savings are invested, I’m in a much better place to see tweets like that and breath easier (even though I’ll probably only have about 2/3rds of my salary saved by 30).

So what should you do now?

After tweeting something about how unattainable those retirement numbers are, here’s what to do next—even if you feel like you’re incredibly behind, will never catch up, or will never be able to save that much.

Save something every month.

Yes, retirement is scary, and hitting the “recommended” numbers is hard. That’s why you don’t have to start there—you just have to start.

Even if you can only put away $20 a month, building the habit of saving for retirement, and recognizing it as part of your budget, is valuable (and don’t let anyone tell you that it isn’t).

Invest it.

It’s even more important that you invest your money if you’re not able to save gobs and gobs of money for retirement right now, and the earlier you start investing, the better.

Every dollar you earn in interest is a dollar you don’t have to save, and you can start investing with your $20 a month retirement savings contributions. Yes, seriously.

Not sure how to start investing?
I got you. Take the free, 5-day Zero to Investing Hero email course to learn all about the different beginner-friendly ways to start investing, and what you need to know before you do.

Aim for saving 10% of your pre-tax income.

My hope for you is that through a combo of advancing in your career, asking for more money, and maybe side hustling if it’s a good fit for your life, you eventually make more than you did in your first job.

Since you’re used to saving for retirement, and you’ve already got investment accounts open, when your income rises it’ll be a total snap to increase your retirement contributions accordingly. If you’re not yet saving 10% of your income for retirement, that’s the goal you should focus on with (most) of your additional income.

And once you’re there? Maybe you can splurge on some luxury items, too. Until then, yes, retirement needs to be a priority. Future You will be so happy about it, trust me.

And if you have savings you’re not investing yet?

It is a pants-on-fire emergency and you really do need to stop, drop, enroll in Zero to Investing Hero, and figure out how and where you’re going to invest your money.

Yes, right now.

Not later.

Right now.

Right now.

P.S. If you’re in Canada, check out my Financial Literacy Month throwback posts to learn about the TFSA and the RRSP, to help figure out which one is best for your retirement savings right now. They’re good accounts, Brent.

Desirae is on a mission to demystify and un-boring financial info for millennials, so that we can all save more money, spend on stuff that matters to us, and still have a latte or two along the way. Money is literally why we can have nice things, and Desirae is committed to helping make sure you know just enough to make the right calls for you. (She’s also committed to her expensive dog, her side hustle, and her retirement fund.)

7 Comments on “You Don’t Need to “Save” That Much for Retirement”

  1. Casey

    Id like to add that if youre a new grad making $40K, its quite likely you WONT be making 40K by the time you are 30! My savings rose quickly as I worked on my career. I think all you can do is manage the money you got as best you can, and consider a side hustle if you dont have enough to save and have fun

  2. Steveark

    Adding to the last comment, salary is changing every year. That makes the numbers worse. Most people’s salary is higher at 30 than at their first job. so in your example you don’t need to save $4ok by 30, you need to save $50k if you average 3% raises. And by 60 you would need much more than $4ook, more like $1 million plus! In my case my pay at age 59 when I retired was 24x my starting pay because I averaged 9% annual increases which means I’d need 240x my starting pay saved, or over $4 Million (if you count stock options and bonus as pay).

  3. Laura

    Great article and wonderful advice to start saving no matter what! Another thing that worked for me is to save 100% of every raise. If you start work and make $40,000 and in your second year you get a 5% raise you will now make an extra $2,000. Save that entire amount and invest it. You were able to live on $40,000 your first year of work so you can do it for the second year. As soon as you get your raise set up an automatic transfer to your saving or investment account and you wouldn’t notice.

  4. Potato

    Can confirm. Had over 1X salary saved at 30, which was more than double what I had been saving over the previous years thanks to investment returns. Oh, and I was still in grad school at 30 (so on the one hand, I didn’t have much excess to save; OTOH, any multiple of my salary/stipend was a low bar).

  5. Daisy

    Same over here! I’ve saved more than 1x salary at 30 even though I only took my money seriously in the last 4 years because of investing. It’s scary and it feels easier to just say game over and bury our heads in the sand, but it’s not as bleak as all that. The gifs cracked me up btw!

  6. Chris @ Keep Thrifty

    Yes! I love the way you tackled this!

    If you’re not investing, you’re getting double whammied (yeah, I just used that phrase) because you’re missing out on the gains and losing out to inflation at the same time. If you just do the most simple kind of investing (plugging your money into an index fund), you can get to retirement at 65 (or so) without having to save some crazy amount of income.

    Thank you for putting this so clearly for everyone out there!

  7. James@marcopolomoney

    Another down to earth, great post! There really is no excuse to not start investing as soon as possible, which for most people is when then get their first job. The easy access to information on Index Mutual Fund investing makes it simple really. This is where the internet really shines, and compared to 20 years ago, where Mutual Fund dealers regularly fleeced their customers for exorbitant fees, now, with a little bit of work on our part, we can invest in funds that closely mimic the market itself.

    Over time, there really is nothing to lose. However, if you try and time the market, and try to make it big in the short term, you will inevitably get burned. Long term (20-30 years) and the buy and hold//invest a certain amount per month over hell and high water (Dollar Cost Averaging) methods win, hands down! Count me in.

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