|Crimson by Greg "Craola" Simkins|
Retirement Advice 101I thought that if was following the advice that I always heard that I was ahead of most people. To be honest, I was probably doing better than most people by saving just 10% anyways. But I wasn't making $175k per year so 10% was not going to even get me half of the way to maxing it out. Years later, if I still followed the 10-15% advice I would still have a large gap between how much I was saving and the maximum allowed.
But why did I follow the standard rules for what I had heard about saving for retirement? I knew if I followed the standard advice I would be comfortable once I got closer to retirement. If I followed the beginner's rules, then I would probably end up with the beginners retirement, and 67 does not sound like the age I want to retire at.
Retirement Advice 201Eventually I found personal finance blogs which changed my way of thinking about saving for retirement. I stumbled into them quite accidentally but once I realized I could cut decades off of my working career I woke up, I had that moment where things just click and I knew I could make it work.
Suddenly I realized that the standard advice I followed was for the normal person, and I didn't want to be average in this area. I wanted to be an above average person, I wanted to retire early.
The first step was maxing out my 401(k) each year. So I figured out how much I would need and I upped my contributions to a large percentage, the woman in the HR department even gave me a funny look about it that screamed, "wait, you really want to contribute that much."
Retirement Advice 301The next piece of advice on retirement savings came from an unlikely place for me. My parents are good with their money but it's not something we really talk about very often. One day I was telling them about how I was maxing out my 401(k) and my mom told me about how she likes to give herself a bonus each year.
Zee: "What? A bonus? What do you mean a bonus?"
Mom: "Yeah a bonus. I contribute enough to max out my 401(k) early so that at the end of the year I start getting a bonus in each paycheck. Since I'm used to getting paid a certain amount, once I max out the contribution for the year my paychecks get larger and I feel like I'm getting a bonus for doing a good job. Also you are my favorite child, your brother and sister come in at a distant second and third place."
Okay, okay, perhaps the conversation didn't happen exactly like that. She might have not mentioned my brother and sister in the conversation but the rest really did happen. I was in my late 20's when my mom told me that... and she's still taking me to school.
Getting a bonus is a great feeling. Suddenly when your paycheck increases by the amount that you were contributing it can have a few different effects. The first is feeling awesome, because not only have you maxed out your contributions, you've managed to give yourself a bonus to enjoy for doing such a good job. The second is that since it's usually the end of the year and the holidays are coming it can make your holidays not seem so expensive since your bonus is timed with the most expensive time of the year. But since humans can adapt pretty well to certain situations we're used to only having so much money coming in. Most people will have already planned for the holidays in their budgets so your bonus is truly that extra icing on the cake.
If you're truly committed to early retirement you'll probably do what I do and just invest it somewhere else, I find that it's a good kick start to my next years Roth IRA contributions.
I know that not everyone can max out their 401(k) but if you can, I suggest you try giving yourself a bonus. There's nothing wrong with maxing out your contributions early!
UPDATE: As J. Money pointed out to me in the comments, please be sure that if your company has a match that you don't get penalized by front loading your contributions. Some plans only match the first 3% of each paycheck, so if you max out your plan in October you miss out on the potential match (and free money!) for November and December. Some plans avoid this so you might not have to worry about this but if you don't know ask your HR department for clarification.
Would you try it? Do your parents still make you feel like a novice?