“Is It Too Early to Start Saving for Retirement?”

I was a teenager when Congress created the Individual Retirement Account, and as soon as I had my first summer job, my father advised me to open an IRA.  You can imagine my reaction; I didn’t yet have a full-time job, and my father was talking about retirement!  However, my father managed to persuade me by teaching me the Rule of 72 (72 ÷interest rate = number of years in which an investment will double).  At a time of double-digit interest rates, I imagined I would retire with more than enough in savings if I continued to maximize my IRA contributions.

Circumstances changed.  Interest rates fell; they’ve been below 10% for almost 30 years and hovering slightly above zero since 2009. In addition, the annual maximum IRA contribution did not keep up with inflation (in the first 25 years of the IRA’s existence, the maximum contribution was increased only once, in 1982, from $1,500 to $2,000).  Yet, despite my increasing reliance on employer-sponsored retirement plans to help me meet my retirement goals, investing in my IRAs has remained an integral part of my retirement planning, particularly now that I have added a Roth IRA to the mix.

Despite all the changes, one thing has stayed the same:  starting the savings habit early is as important today as it was back then.  Luckily, today’s parent has a new tool to help persuade young people of the benefits of investing early, and often in IRA accounts – the Roth IRA.  Any funds invested in a Roth IRA can be withdrawn penalty- and tax-free once the account meets the five-year rule.

My daughter received her first W-2 last year, and it was my turn to convince a teenager of the importance of saving early for retirement.  Would the promise of future benefit, be it 5 years or 50 years down the road, be enough to persuade her?  In all honesty, we’ll never know.  I was so intent on persuading her to start learning the value of saving for retirement that I made her an offer she couldn’t refuse; a 1:1 match on her investment. It worked!

The clock has started ticking.  Four years from now, I hope my daughter will understand that “our” investment should be withdrawn from her Roth IRA only in case of a true emergency.  More importantly, I hope she will have adopted the habit of investing in her own IRA and her own future.


TKCPA is a guest blogger for our firm. A CPA and lawyer with 7 years of experience, she currently works at an accounting firm in the DC metro area and specializes in accounting for non-profit organizations and individual taxation.  Follow Lumix on TwitterFacebook, and LinkedIn for the latest insights, news, and updates in accounting and advisory services.