Paycheck savings decrease stress after retirement
We are in a gifting season and I am thrilled to share the story of my favorite gift: a money talk.
A lot of people are willing to give sage financial advice but in vague adages. We say things like, “pay yourself first” or “always live within your means.” I will listen to any money advice, but we can go further by giving people specific financial advice that they can act on or use to set a goal.
Consider the wisdom of a woman we will call “Cindy,” a nurse practitioner in Tennessee, who, after a vague apology for getting into their business, launches into money advice with her coworkers — with specifics.
Cindy will ask coworkers saving nothing to get something — anything — in their accounts. She appeals to them to contribute just $10 to $20 a paycheck. Even better, max out the company’s match.
But then the magic comes in. She asks them to commit to increasing their savings’ rate by 1% at every windfall in their lives. Got a pay raise? Log in to your retirement account and increase your contribution by 1%. Paid off a car? Increase by 1%. Paid off your house? You get the point.
Cindy is good with her money. She is nearing retirement age, but somewhere in the last couple of years she realized that she could wake up one morning and decide not to go to work. She loves her job and her coworkers so would never do that without notice. But when she realized that she was not going to work because she needed money, something shifted in her head. Work became — fun.
She sees the stress from living on the financial edge or falling into debt traps and knows there is a better way. We want nice things, and Cindy has nice things. She has a boat and “lots of outdoor toys,” as she would describe it. But Cindy got
those things when she could pay for them and not go into debt.
Her passion for helping out friends and coworkers is because she thinks they can all have what she has. They can live a life without financial stress. They can avoid crushing credit card debt. They can put away a little from each paycheck to have the freedom to stop working one day — on their own terms. But they need a lot more focus.
Cindy got her focus growing up on a cattle farm. She realized one goal for sure. She did not want to be a farmer or marry a farmer. She believes it is a noble profession but wanted a job with more freedom to take vacations, to have a little more personal time. Her ticket to such a life was to become a nurse and then ultimately a nurse practitioner.
Saving was not ingrained in her growing up, and her entrance to saving came at the credit union. Cindy had scholarships for most of her education but had to take out a loan for her last semester. The credit union gave her that loan but under one condition — she had to save money. She was working while in school, and they helped her set up a weekly savings deposit of $10 per week.
After she graduated and her pay increased, she raised that amount to $25 per week. That savings habit only continued to grow as she realized the power of saving.
By the age of 30 she recalled having $10,000-$15,000 in savings for a down payment on a home. Imagine that one nudge from the credit union made her a saver!
When Cindy became a nurse practitioner, a coworker urged her to sign up for the retirement plan and to max out the match. That was her beginning of a passion for saving for retirement. Seeing that account grow with her savings’ deposits, the company’s matching deposits, and the investments was all she needed to apply the same habits from her 20s and 30s. Every time she had a windfall or when something was paid off, she would increase her savings by 1%.
At age 50 with student loans and other debts paid off, she and her new husband continued that escalation. What’s funny to me is that she never looked at where she was. It was at age 60 before she realized that her work savings rate was over 25%.
She and her husband married a little later in life and maintained separate savings. Cindy admits that it helps knowing her husband, now retired, was saving just as aggressively. Otherwise, she might not be in the position she is in today.
I asked her how coworkers respond when she asks them to follow her path — just get something in and keep escalating by 1%. She shrugs and admits she doesn’t know. She laughed when she said she tells these coworkers, “You’ll thank me one day.”
But she is merely paying forward the gift that people gave her at pivotal times in her life — the credit union that had her save as part of the terms of the loan and the peer at work who explained the retirement plan and urged her to join and max out the company’s free money.
Are you inspired by Cindy’s story to start saving?
Well, just set something up right now. Anything. Embrace the plan to set your honest intention to add 1% to your savings every time you get a raise or pay off a debt. It’s easy. It’s painless. It’s powerful.
And in fact, there is so much science behind what Cindy discovered on her own. Many retirement plans now offer “automatic escalation,” a fancy way for automating an annual increase in savings by 1% up to a maximum goal, often 10%.
If you take action on this gift of inspiration from Cindy, please remember to pay it forward. Think of your coworkers, friends and family — get into their “business.”
I can’t imagine a more powerful gift. And they will surely thank you later.
Sarah Catherine Gutierrez is founder, partner and CEO of Aptus Financial in Little Rock. She is also author of the book “But First, Save 10: The One Simple Money Move That Will Change Your Life,” published by Et Alia Press. Contact her at sc@aptusfinancial.com.