When I got my first office job in my 20s, I had access to a 401(k) for the first time. Exciting, right? Except, I was making $11 an hour — how was I supposed to save for retirement and afford to do things like eat or pay rent? Plus, retirement seemed so far away.
While I do wish I’d set aside at least a little back then, my husband and I now have more than $500,000 in various retirement accounts and investment funds earmarked for retirement. This puts us well above the average for our age range.
According to the Fed’s Survey of Consumer Finances, the average American between the ages 35 and 44 had $141,520 in retirement savings in 2022 (when the most recent numbers were released). This means the average couple likely has around $282,000 saved by the same age.
So, how did we do it? Slowly, over time, and not without a few mistakes along the way. Here are a few steps that helped us build our retirement savings.
My husband started his 401(k) in his 20s
This is probably the biggest factor in our retirement savings. My husband started saving for retirement at his first “real” job in his early 20s. By the time we married, it had grown a little bit, but he wasn’t maxing it out or paying much attention to the investments.
About 10 years ago, I became interested in personal finance. I joined groups about retiring early and read about people who built large nest eggs. At the time, it seemed out of reach for us. I understood the concept of compounding interest, but reading about people who actually used it and were willing to share their stories was an eye-opener.
Our income grew over time, and in our early 30s, we adjusted our budget to ensure he could max out his 401(k) every year. Over the last 10 years, the value of his 401(k) has increased six fold.
I started an IRA in my 30s
Remember how I said I didn’t start a 401(k) at my first job? I also didn’t start an IRA because I wanted to pay off my student loans. I became self-employed in 2014 and began working toward paying off the loans — which started at $20,000 and ballooned to $35,000 due to deferments and compounding interest. (It turns out that compounding interest works both ways!)
I spent the next few years building my income and dumping cash into my loans. Once I paid them off, I finally created an IRA and started maxing it out each year. The max contribution level is much lower than a 401(k), so I took over more of our bills so my husband could continue to max his 401(k). This is a smaller portion of our retirement savings, but it is growing steadily.
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We max every tax-advantaged account as much as possible
In addition to maxing out my husband’s 401(k) and my IRA, we also max out our health savings account (HSA). We’d had this account for several years, but I didn’t completely understand how they worked.
If you have a high-deductible insurance plan, you’ll often get access to an HSA, which allows you to save pre-tax dollars for medical expenses. In addition to lowering your tax liability in the year you save, you can also invest those funds and use the tax-free growth for medical expenses. The average retired couple can expect to spend around $315,000 on healthcare expenses in retirement, so this fund just for medical costs will likely serve us well.
We pay attention to returns
It’s easy to put your retirement investments on autopilot and forget about them. In the past, we sometimes left money in funds that weren’t performing that well because we didn’t know where else to put it.
As we learned more, we started paying closer attention to how our investments were performing and moving money to more stable investments, like index funds. While index funds are still at the mercy of market fluctuations, they tend to be a bit more stable.
Where you put your money will depend on your risk level, but pay attention to how your investments perform over time so you can make the most of your savings.
We have sinking funds for expected expenses
In my high-yield savings account (HYSA), I have buckets for expenses like a new car, car repairs, house maintenance, pet medical needs, a new laptop, and the kids’ summer camp. While this isn’t specifically money for retirement, it helps protect our retirement account because we won’t pull funds out of retirement savings when expenses pop up.
It means we don’t have to lower our retirement savings rate to cover unexpected costs — because we’ve anticipated as many as possible.
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What would I change?
With more than $500,000 in retirement accounts, I finally feel like we’re in a good place. We still have time to save, so I am fairly confident we’ll have enough to navigate our later years without pinching pennies.
But I also know we’d be in a better place if I started my IRA a little earlier. I also wish I’d known to max out accounts earlier, but honestly, I don’t think we could have. With two kids and all the expenses that come with them, it was hard to find the money to invest in our future in our early 30s.