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Getting an early start on saving makes a huge difference in retirement income

Tue., Dec. 8, 2009, midnight

A common mistake made in retirement planning is starting too late. It is far too common and can have serious implications.

Sometimes a story is the best way to relate an idea: In 1974, the Employee Retirement Income Security Act created the traditional individual retirement account. The IRA was established so those without employee-sponsored pensions could save for retirement. Great idea. At the time my dad was 50 and started his retirement savings plan. He strongly encouraged me to do the same, and I started funding my IRA at age 18. This year I turned 50.

Dad funded his IRA for 15 years at $2,000 a year (the limit at the time) for a total of $30,000. When he retired, it had grown to a little over $50,000. That was a good nest egg, but is that adequate to create a pension income to supplement Social Security?

It was not. Social Security covered about 40 percent of my parents’ retirement needs, and they needed an additional $1,500 to $2,000 a month to sustain their lifestyle. The $50,000 IRA would last less than five years. Fortunately for him, there were other resources to provide income.

I have been saving for retirement for 32 years and have 15 more years to save if I decide to retire at 65, 20 years if I wait until I’m 70. There were a few lean years – kids and a first home – so maybe I wasn’t as consistent as I could have been, but it has added up over time.

Investment returns have not been as good as I would like, but I kept plugging along, increasing contributions as the limits adjusted for inflation. My retirement savings are in the six digits, and if I have 20 years left, the compounding effect and my future contributions should create a comfortable retirement. I also am in my peak earning years, and both of my children are on their own, giving me more opportunity to increase savings.

Another great advent is the 401(k) plan. It allows me to save more in the employer’s plan than if I were only funding an IRA, and my employer gives me matching funds.

If all goes well I should have the option of retiring at 62. Life has a funny way of throwing in a few twists and turns, so if I have to work longer that’s all right. I probably will anyway. At least I have a plan and should be able to make slight adjustments along the way to navigate whatever life puts in my way.

Thanks to my dad for his insight into saving for the long-term. It is worth investigating your options or seeking advice if you need assistance. A good plan and time can make all of the difference in the world.

Nancy Hadley is a certified financial planner and member of the local Financial Planning Association chapter. Readers are invited to submit questions on financial planning to be answered in this space each Tuesday. Send questions to

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