Retirement: Ya Gotta Do It Someday…

Yesterday I did something I probably should have done awhile ago: I opened a Roth IRA. It’s something I had thought about doing before, but I was paralyzed by fear… I didn’t know the 'right' way to start a retirement investment, so I did nothing. Yesterday I finally decided that it would be smarter to start saving for retirement now without having a perfect strategy, than to sit around waiting for answers that I wasn’t finding. What spurred me to finally make the plunge was an article on the U.S. News and World Report website: Financial Tips for 20-Somethings. The article interviews Ramit Sethi, creator of the I Will Teach You to Be Rich blog. In it, Sethi is quoted as saying :

There's a funny idea in our culture that more information is always good. But as Barry Schwartz noted in The Paradox of Choice, the more choices we have, the less likely we are to do anything. In a study about 401(k) participation, he wrote, "For every 10 funds added to the array of [401(k)] options, the rate of participation drops 2 percent."

So if the average 20-something sees 20 fund choices at work for his 401(k), TV commercials about annuities, blog posts about Roth IRAs, and newspaper columns about not spending so much on lattes every day, what do you think he'll do? Chances are: nothing. Over half of 20-somethings don't contribute to retirement accounts. Forty percent don't even deposit money regularly in a savings account.

He goes on to say:

Getting started is more important than being the smartest person in the room. If I had a choice between being 100 IQ points smarter or starting to invest earlier, I'd choose starting earlier. I encourage young people to read enough to get started but not to worry about knowing every investing instrument under the sun.

This made perfect sense to me. To get started, I moved $3,000 out of a money market investment and into a retirement account. It was the minimum investment, but I wanted to have something left in the money market as it’s my emergency fund. So now there’s $2,500 in the money market and $1,600 in my basic savings account, making my total amount in savings a whopping $7,100. It could be worse. In fact, the majority of my friends have absolutely NO savings.

I actually started saving several years ago, but as I’ve been living hand-to-mouth for the last two years while I was in grad school, I wasn’t in a place to be able to regularly contribute to my savings accounts. Now I’m out of school and finally earning some money, but I also have the added expenses of student loan payments and am finally contributing a full 50% to our living expenses, which was impossible for me to do before.