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Is Retirement Saving a Sprint or a Marathon?


retirement saving sprint or marathonA few weeks ago, I was reading Frugal Rules’ article – When Should You Start Saving for Retirement? Of course, the answer is “as soon as possible.”  It’s pretty obvious really. Another point John made was that retirement saving is a marathon, not a sprint. Saving a little every year is much better than trying to catch up at the end. I agree with that, but sprinting at the beginning is even better especially for people who want to retire early. Let’s crank some numbers.

Assumptions: 7% compound interest. I’m going to ignore inflation and tax on this one to keep it simple. I’ll put everything in a table at the end for easy comparison.

Marathon VS sprinting at the end

Sprinting at the end is good if you are already near retirement age. Even Uncle Sam knows that and let you save an extra $5,500 in your 401k plan after you’re 50. The extra retirement saving will give you a little boost. However, if you’re young, it’s much better to start saving for retirement ASAP. Waiting until you’re older to save for retirement will make it much more difficult to have a comfortable retirement.

Marathon – If you had saved $3,000/year since you were 20 years old, you’ll have $1,103,000 by the time you’re 67. That’s not bad, right?

Sprint at the end – Most people say they couldn’t save much when they were young, though. Many of us had put it off until we were a bit older. If you save $3,000/year from the time you’re 40 to 67, then you would only have about $241,000. That’s a huge difference from the marathon saver. Even if you save an extra $5,500 from 50 onward, you’d only have about $420,000.

As we can see, it’s much better to save consistently, starting from your 20s rather than putting it off until you’re older.

Sprint at the beginning

What if you sprint in the beginning instead? What if you can move that $5,500 extra saving from age 50 to 67 and put it right at the beginning? So from 20 to 37, you save $8,500/year then ratchet it back down to $3000/year. This is call front loading and it’s pretty amazing.

Sprint at the beginning – Save $8,500/year from 20 to 37, then $3,000/year until 67. By the time you retire, you’d have $2,562,000 saved up. That’s a huge increase from what we had previously.

Sprint at the beginning, then coast – Save $8,500/year from 20 to 37, then nothing after that. You will be in for a big surprise here. Even if you don’t save a dollar more from 37 onward, you would have $2,255,000 in the bank by the time you’re 67! Isn’t that mind blowing?

retirement saving sprint or marathon

Time is on your side (if you’re young)

Time is your biggest friend when you’re young. Compound interest will give you a huge boost if you started saving for retirement early. Of course, it’s much harder to save $8,500/year when you are 20 than when you’re 40, but if you can do it, you’ll have much more options than the typical American household (who are in the midst of a retirement crisis.)

Actually, I think most young people just don’t realize how much compounding will help them. If they understand this, they might continue living a student lifestyle for a few more years and invest more of their salary early on.

Save as much as you can as early as you can

I started contributing to my 401(k) with my first paycheck and ramped up to the maximum contribution limit a few years after that. When I quit my engineering career, I didn’t have enough retirement saving to be fully retired, but I knew time was still on my side. As long as I don’t draw down my retirement saving, it should continue to grow over the next 27 years. I’m reasonably confident that we’ll have a very comfortable retirement when we reach 67.

Here’s my formula – don’t be afraid to come up with your own.

From 20 to 39 – Get a good job, then save and invest as much as I could.

From 40 to 67 – Work on something I like and enjoy the journey. Save a little bit whenever I can, but the crucial thing is to avoid withdrawing from the retirement accounts.

67 to 100 – Cut back on work gradually and enjoy a comfortable retirement.

Retirement saving isn’t a foot race. Front loading is the best way to get ahead and stay ahead. The money you save early on is worth much more than what you’ll save at the end due to compounding.

What’s your plan? Did you save for retirement when you were in your early 20’s? If you’re young, try to save as much as you can ASAP.

See what happens if you always maxed out your 401k contribution.

Photo credit: flickr Mitchelle Media

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, the job became too stressful and Joe retired from his engineering career to become a stay-at-home dad/blogger at 38. Today, he blogs about financial independence, early retirement, investing, and living a frugal lifestyle.

Passive income is the key to early retirement. This year, Joe is increasing his investment in real estate with CrowdStreet. He can invest in projects across the U.S. and diversify his real estate portfolio. There are many interesting projects available so sign up and check them out.

Joe also highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help DIY investors analyze their portfolio and plan for retirement.

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{ 62 comments… add one }
  • Matt the Gold Investor October 22, 2013, 2:39 am

    I think I missed out on saving in my early 20s. Got wasted most of the time..LOL. Now that I’m much older, I will opt for the “sprint at the end” method. I believe it’s not too late. Nevertheless, I would advice those in their 20s to start saving and avoid my mistake.

  • Martin September 10, 2013, 10:47 pm

    Although it should be a marathon I am actually sprinting it to catch my crazy wasted years.

  • davidmichael August 29, 2013, 11:38 am

    This is a great article Joe. So true. Investing for retirement is like a marathon. It’s so easy to stray off the mark with life’s ups and downs plus the constant barrage of market propaganda about what’s happening today. Just know this is mostly noise, and the way to success is to make that monthly contribution for 30 years or more. Let compunding do its magic! Wish I would have gone that route when I was in my 20’s, or even 30’s. It’s challenging to catch up.

  • Done by Forty August 28, 2013, 2:10 pm

    Huh, interesting concept. Sprinting coming out of the blocks does seem to be the best option, assuming that you don’t miss out on some sort of crazy buying opportunities during the “coast” period. Still, it’s hard to not come out ahead…let the investments seasons longer, better returns.

    The key period seems to be right when the first job is obtained: when the newly employed remembers how to live well on no money, and is young enough to make big sacrifices without it seeming odd to his or her friends/family.

    • retirebyforty August 28, 2013, 3:37 pm

      I think if we rebalance during the coast period, it should still turn out ok.
      Yeah, I was pretty lucky that all my friends were relatively frugal.

  • freebird August 27, 2013, 7:46 pm

    Joe, I think you’re spot on that it’s the early dollars that make the most difference. I was fortunate to have hired out of school into a job that I hated, so early on I went on an early retirement prep program. Fast forward more than 20 years and I still live like a grad student, but I don’t need the paycheck, and maybe it’s just this fact that has turned work into a pleasure. So even though I’ve still got the saving bone, my income doesn’t move the needle hardly at all any more.

    The flip side of your point is think about how much damage is done by excessive student loans. Kids who graduate with a balance more than a year’s wages are blowing their most productive seed corn paying for someone else’s retirement. Another point is that it’s a fallacy that early life money mistakes can be ironed out later. It takes a lot of money in your 50s to make up for all that lost compounding of your youthful indiscretions.

    All the more reason financial education belongs in high school. Figuring it out along the way is an expensive detour.

  • LoveTheFreedom August 27, 2013, 6:31 pm

    I didn’t sprint until I was 2 years out of grad school at 27, when I first had a 401k available. I sprinted like crazy from age 27 until my late 30s, helped by good compensation, thank heavens, so it wasn’t too painful. Into my early 40s, I continued to max out my retirement savings (401k, profit-sharing, & IRA) and add to taxable accounts, and I paid off my house. Then I had my kids – a risky plan to wait, but thankfully it worked out – and dreamed about exiting my professional dog-eat-dog world. I lived modestly in pursuit of freedom. After much planning, I did it and I love my mid-40s “semi-retirement”! The compounding will continue. Like you, I will not spend any of my savings until at least 65. I feel very fortunate that everything worked out, and wish I had known about (or paid attention to?) compounding/retirement savings earlier than 27. I will definitely teach it to my kids.

    • retirebyforty August 27, 2013, 9:37 pm

      That’s a great story. Thanks for sharing with us. It’s great that you got out in your mid 40s while you’re still energetic. Waiting a bit to have kids worked out very well for us too. We weren’t ready to have kids in our 20s. Enjoy your semi retirement!

  • Buy & Hold Blog August 27, 2013, 1:48 pm

    Loved the article. This point is made many times by investment companies. But, your article is easier and simpler to understand.

  • [email protected] August 27, 2013, 5:33 am

    Great article. I’m unfortunately in the position where I’m sprinting at the end. However, I’m also in a position where I think I can help out my kids.

    So, I’m thinking that your great article, with the $ graph showing how it all works, helping them start to sprint at the beginning. Dang, I really wish I knew this stuff when I started out!

    • retirebyforty August 27, 2013, 8:43 am

      Oh yeah, a graph. It’ll be easier to understand. I’ll work on it. Thanks for the idea.

  • The Dividend Guy August 27, 2013, 4:19 am

    My plan looks more like a Spartan Race 😉

    I don’t plan running a marathon as I find it too long so I need to find ways to make retirement happen faster by going over obstacle. It’s a challenge and requires both strength and stamina + it’s fun to do!

    • retirebyforty August 27, 2013, 8:42 am

      Good luck! It’s tough when there are a lot of obstacles. Kids are expensive too. 🙂

  • [email protected] August 27, 2013, 2:14 am

    Saving while you’re young is equal to getting a head start in your marathon. Problem is sometimes people get tripped up in the race and often drop out. Stay the course and you’ll be fine, otherwise vote for wealth distribution.

    • retirebyforty August 27, 2013, 8:42 am

      That’s true. You have to keep going even if it’s a slow sometime.

  • Bryce @ Save and Conquer August 27, 2013, 12:36 am

    Sprinting hard early on can really pay off, if you invest in low-cost passive index funds. Unfortunately, I thought I could pick stocks and time the market when I was young, so I saved a lot and then lost a lot. I have learned the error of my ways. I don’t know if you would call it a continual sprint or a marathon, but my wife and I have maxed out our retirement accounts since the mid-80s, and will continue to do that until we retire.

    • retirebyforty August 27, 2013, 8:41 am

      Oh wow, that’s great. I’m sure you are doing very well and should have a comfortable retirement soon. Cheers.

  • Micro August 26, 2013, 7:24 pm

    This is why I am contributing to my 401k to get the company match and maxing my IRA contributions even though I have student loans I’m working on. Sure, I could neglect those and get the loans paid off 2 years earlier. In doing so though, I would be missing out on the compounding interest that those contributions would grant me for the next 30+ years. It also helps that my current plan is to pay off my student loans in 4 years instead of the 10 year plan. In my opinion, ratcheting down to 2 years at the cost of retirement savings isn’t worth it.

    • retirebyforty August 27, 2013, 8:40 am

      That’s what I would have done too. Good luck with the student loans.

  • Emily @ evolvingPF August 26, 2013, 6:40 pm

    I think we may have been sprinting through our 20s. We’ll have to see what our overall lifetime “pace” is at the end to see if this was a sprint or just a moderate pace, if that makes sense. We’re not striving for ER but we also don’t know what our usual expenses will be since we don’t yet live in our lifetime city. So it’s not clear how fast we’re running but I’m pretty sure we won’t be sprinting at the end.

    • retirebyforty August 27, 2013, 8:39 am

      Do you know where you would like to live? You’re doing really great with your savings though. So many people in their 20s just don’t save anything.

  • Dividend Mantra August 26, 2013, 5:50 pm

    I’m all for the sprint! I’m sprinting as fast as I can right now.

    I think for most, the best approach is whatever works best for their personality. If saving $500/mo every single month from 25-65 is best then do that. If saving hardcore throughout your 20’s while you don’t have a wife and children works best for your circumstances, then do that. It’s hard to find a one-size-fits-all approach.

    For me, I’ll say no thanks to the marathon. Who knows how long life is, and where exactly the finish line is located. I’d rather run the race for a while, and then stop to drink the lemonade the crowd is waving at me. When life hands you lemons….

    Best wishes!

    • retirebyforty August 27, 2013, 8:38 am

      That’s right. I don’t like the marathon either. It’s really hard if you don’t particularly love your job. Good luck!

  • The Fast Letter August 26, 2013, 5:08 pm

    Compounding is a magical thing. Thanks for outlining the various scenarios for us. I remember my engineering economy teacher going over this topic and impressing upon us the value of starting early. I did start very early, and I’m glad I did, because I’ve had a few layoffs in the past 3 years. Fortunately, my wife and I haven’t been knocked too far off course as a result of the job turmoil.

    Keep up the good posts

    • retirebyforty August 27, 2013, 8:37 am

      It’s great that you had some education in this matter. I have never learn anything in school about compounding. Or maybe I just don’t remember. 🙁

  • krantcents August 26, 2013, 4:43 pm

    My plan was to make my money early and invest well.! The longer your money is invested and growing the better off you are. Trying to catch up rarely works, it reminds me of the gambler to doubles down after he lost his money to try to win it back. It is a loser strategy!

    • retirebyforty August 27, 2013, 8:36 am

      That’s a great analogy. Too bad most people don’t realize this.

  • Financial Samurai August 26, 2013, 3:55 pm

    Sprint if you don’t collapse before the end!

    Because, who knows the end??

    • retirebyforty August 27, 2013, 8:34 am

      That’s true too. We have to enjoy life while we can.

  • The Warrior August 26, 2013, 3:26 pm

    I’ve been running in self-induced circles. It’s past the time to get going forward, but no better day than today to start.

    I think I’m in the middle and working to build a stronger retirement fund.

    For those of us behind on this aspect, we can only analyze our errors so much. At some point, we just have to move forward and do better tomorrow than we did today.

    The Warrior

    • retirebyforty August 27, 2013, 8:34 am

      Keep working on it. At least you’re doing a lot better than most US households. Good luck!

  • [email protected] August 26, 2013, 11:58 am

    I sprinted a bit at the beginning, and now I will need to sprint again at the end! I am about to turn 40 (sorry, no retiring for me, yet!) and save for college and apying off the mortgage. I am pretty sure I will be okay , though!

    • retirebyforty August 27, 2013, 8:33 am

      Good luck. It’s tough with college. I’m front loading a bit for that too and I hope the cost increase slows down a bit.

  • wallet engineer #1 August 26, 2013, 10:01 am

    Hi Joe! I think it’s wonderful you’re trying to convey this topic. I find a pretty large amount of peers that have never thought of this topic, never been challenged on it by family or spouse.

    I’m on the other end. Investing at approximately 10k a year and just hit 24. I’m not going to be waiting until 67 to retire- half marathon for me. -W.E#1

    • retirebyforty August 27, 2013, 8:30 am

      Great job! This will pay off later and you’ll have more choices than your peers. Good luck.

  • JC @ Passive-Income-Pursuit August 26, 2013, 8:34 am

    I vote for sprint until you can choose to stop. Compound interest is an absolute beast and works best when fat on capital and time. I really wish that basics of personal finance/investing were taught in school, but I plan to teach my kids from early on the concepts and then take it as far as they want to go.

  • [email protected] August 26, 2013, 7:53 am

    I love the marathon/sprint and money saving analogy. Lucky for me, my father taught me about investing and saving at a young age. He helped me to open an IRA right before I graduated from college and I continued to contribute into the plan. I also signed up immediately for my 401k plan when I started working when others didn’t because they “couldn’t afford to.”

    • retirebyforty August 26, 2013, 8:37 am

      That’s great! I’ll make sure my kid know about saving and investing too. It’s such an important skill. It’s too bad so many people don’t understand it.

  • John S @ Frugal Rules August 26, 2013, 7:42 am

    Good article Joe! I, of course, agree that you should start as soon as possible and the earlier (and more) the better and then level it out some. I think that if your goal is for early retirement, or simply having more in retirement, then the sprint approach in the beginning can be a great way to go.

    The point with the marathon approach idea though was to simplify for readers that saving for retirement is not going to happen overnight but takes solid work and effort. Looking back, I wish that we would’ve started earlier and more towards it as well. I failed to see the power of compounding when I was younger, as many do, and thus saving does not become a priority. Thanks for the mention by the way! I’ve actually got a companion post I have scheduled to go with it that I’d been planning on touching on this topic in further detail. Hopefully I can somewhat match up to yours. 🙂

    • retirebyforty August 26, 2013, 8:36 am

      Thanks for the idea! The marathon approach is good for most people. Even what I call sprinting at the beginning took 16 years for me. So it’s not really a short sprint… 🙂

  • Pretired Nick August 26, 2013, 7:38 am

    You are SO right, but I made so little in my 20s that this wasn’t even a possibility for me. But the principle is still true no matter when you start. It’s like the old proverb, there are only two right times to plant a tree: 20 years ago and today.

    • retirebyforty August 26, 2013, 8:35 am

      I was really lucky to make some money in my 20s. Now I don’t make a lot of money, but I think the front loading will carry me through. 🙂
      I haven’t heard that proverb, but it sounds about right.

    • Steve August 26, 2013, 12:56 pm

      I made decent enough money in my 20’s, and saved a decent enough chunk of it. But my household savings rate didn’t really take off until I got married. Anyways regardless of the specifics, the simple truth is that saving $8500 at age 20 is nothing like saving $8500 at age 55. (Even in inflation adjusted dollars.)

  • No Waste August 26, 2013, 7:25 am

    Start saving for retirement yesterday!

    Front-loading means you can enjoy a longer retirement, which should be everyone’s goal!

    It’s also much less painful than sprinting at the end when you’re really just looking to slow down and enjoy your morning Ensure.

    • retirebyforty August 26, 2013, 8:33 am

      Front-loading is the way to go. It’s too bad not many people realize that or can do it.

  • SavvyFinancialLatina August 26, 2013, 6:28 am

    Thanks for the advice Joe! Your posts really motivated me to figure out how to max out my 401K, and I started it doing a year after starting my real world job. I’m hoping an early start at 23 allows us to have financial freedom early on. My husband doesn’t have a 401K so we can’t invest through his. We are planning to max out our ROTH IRAs this year. Last year we didn’t, but it’s one of my goals to max out the 2013 ROTH IRAs by the April deadline.

    • retirebyforty August 26, 2013, 8:33 am

      You are doing so great! I’m looking forward to seeing how you’ll do by the time you’re 40. 🙂

  • EL @ MoneyWatch101.com August 26, 2013, 6:13 am

    I started saving early at 21, but I didn’t put in $8500 a year, I put in what I could when I could. Now i’m in my 30s I am saving a lot more. I hope compounding works in our favor, and inflation stays low. Joe Maybe one day you can sell the website and make out like a bandit.

    • retirebyforty August 26, 2013, 8:32 am

      At least you got started. Great job! I hope I can make out like a bandit someday too. Not too soon though. 🙂

  • insourcelife August 26, 2013, 6:02 am

    I read both posts and I gotta say, yours sounds a lot more convincing just because the numbers speak for themselves!

    • retirebyforty August 26, 2013, 8:31 am

      Thanks for the vote! 🙂

  • [email protected] August 26, 2013, 5:33 am

    We didn’t start saving for retirement until our late 20’s. I really wish we would’ve started sooner but there’s nothing we can do about it now. Retirement was the last thing on my mind when I was in my early 20’s!

    • retirebyforty August 26, 2013, 8:30 am

      I’m pretty sure that’s how every 20 years old feels. I’ll try to make my kid save a lot early on.

  • [email protected] August 26, 2013, 5:15 am

    These figures are a powerful incentive to get started saving for retirement as soon as possible.

    As Sendaiben mentions above, I wish that I’d known about that when I was 18.

    As for the speed, I’d say run when you can run, jog when you can jog and walk if you have to but whatever happens, don’t stop.

    • retirebyforty August 26, 2013, 8:30 am

      That’s true too. You just need to keep moving ahead and don’t spend down what you have already. Thanks for commenting.

  • Free Money Minute August 26, 2013, 3:13 am

    Love the article, very well done. I vote for doing a marathon until you can retire early or at least have the flexibility to do whatever you want to do.

  • sendaiben August 26, 2013, 2:17 am

    Nice. I too wish I had known what I know now fifteen years ago when I was twenty… (I’d be retired by now).

    However, with my 36th birthday coming up soon, I have realised that saving $3000 a month is not too hard, and if we keep this fairly pleasant lifestyle and save extra income as well in the future, the numbers look pretty good.

    So I humbly submit: “Jog the first couple of miles, then sprint all the way to the finish”. Money doesn’t buy you happiness, but the peace of mind is priceless.

    • retirebyforty August 26, 2013, 8:29 am

      Yeah, it’s hard to save when you’re young. 🙂
      You just have to do the best you can.

  • Prasun Choudhury August 26, 2013, 12:56 am

    The results for early sprint is quite amazing! I was too young to save anything at 20 (came to US at 24 for grad school); saved some money (but not anywhere near $8,500 per year) while being a grad student from 24 – 29. But still that savings helped me get a head start with an initial balance when I started my real job.

    I think in your calculation, you are using a flat 7% compound interest rate; i.e. if I invest $X for Y years, the value at the end of Y years will be X * (1.07)^Y. For real scenario, I think we need to factor in a) the tax one will be paying on the yearly income (this can vary quite a bit based on whether it is interest, qualified dividend, capital gain, etc) and b) inflation, which you mentioned that you are ignoring in your data (as you are primarily comparing different investment patterns). I generally assume 2% inflation to be a reasonable number (even though it might be slightly lower than the country’s inflation rate), especially, if one is living in his/her own house. In the last 15 years, the real estate and rent has varied substantially. Other than that, the prices that have gone up are primarily food and gas cost.

    • retirebyforty August 26, 2013, 8:26 am

      I didn’t want to make it too complicated. 🙂
      I know it’s hard for young people to save. I still think many young people have the option to save, but choose to spend instead. That’s a big mistake.

  • Ankit | Getting Money Wise August 26, 2013, 12:16 am

    Great insights! Sprinting right from start can sound daunting but the future returns (as the calculations you show clearly suggest) can be phenomenal. Another advantage of sprinting early is that it allows for some unforeseen circumstances and in that scenarios those early savings can make up for any saving gaps later

    • retirebyforty August 26, 2013, 8:23 am

      Early saving will give you more options later on. It’s much better to slack off a bit later on. 🙂

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