Keith Chen, an associate professor of economics at the UCLA Anderson School of Management, recently completed research that explored how people’s economic choices are influenced by the language they speak. What can we learn from linguists? That languages without a concept for the future — “It rain tomorrow,” instead of “It will rain tomorrow” — correlate strongly with high savings rates.

Some languages refer to the future using verb helpers like “will” and “shall,” while others don’t have specific verbs to refer to future actions. Chen correlated these two different language types with remarkably different rates of saving for the future. If you separate the future from the now it doesn’t feel so important in the present. I’ll save for the future someday. I’ll contribute to my 401k after I finish the library, or maybe after I buy a new Audi, or maybe after we buy that boat.

Don’t simply retire from something; have something to retire to. — Harry Emerson Fosdick

It’s easy to call bull. I’ll be just fine, everyone will be just fine, right? According to the National Institute on Retirement Security, 45 percent of working-age households have no retirement savings at all. Among people 55 to 64, average household retirement savings total only $12,000. For those near retirement who have savings, the average balance is $100,000. Better, but still not nearly enough money to finance 20 to 30 years of retirement.

It’s easy to not save, because it’s easy to spend now. If we ever hope to stop working and enjoy our golden years, we have to save and invest for our retirement.

1. The Best Time to Start Investing Is Now

This part should be obvious, but it’s always a good thing to be reminded of. The sooner you start saving for the future, the better, because a dollar saved today is worth more than a dollar saved tomorrow or a dollar saved in ten years. Waiting to start saving is one of the biggest money mistakes we can make, even bad investments are better than not saving at all.

Do not save what is left after spending, but spend what is left after saving. — Warren Buffett

2. How Much You Should Save for Retirement

How much should you have saved by ageThere is no shortage of “rules of thumb” when it comes to saving for retirement. How much should you investing for the future? Research from over a century’s worth of data suggests the “safe savings rate” is…. well it depends. If you have 30 years until retirement, for example, and want to replace 70% of your salary, using a mix of 60% stocks and 40% bonds, you should be saving 23% of your salary every month. Fidelity’s advice on how much you should have saved by by your age is also helpful and easy to understand. Of course, this 8X rule has many assumptions, including: a retirement age of 67, living until age 92, 3% employer contributions, and a 5.5% average anuual portfolio growth rate, but regardless it’s a helpful starting place.

3. Find the Right Tools to Help You Plan and Manage Your Retirement

If you’re looking to really get started with saving and want to keep track of your long-term investments you’ll want to get some good help. There are tons of great free and paid options out there, I like Sharebuilder, Personal Capital, Mint, and Betterment. For planning your retirement, these calculators are helpful:

  • Morningstar Target Savings Rate is a simple calculator from investment site Morningstar takes your age, annual income, and current savings to determine what percent of your salary you should be putting away each month
  • If you want to project the minimum you should be saving based on actual stock market history FIRECalc is very helpful. FIRECalc tests your retirement plan to see if it would have withstood the worst of financial history.
  • Smart Money Retirement Planner is very visually appealing and robust enough to include costs for different categories of spending in retirement, allowing you to see a year-by-year picture of your entire retirement period.
  • TIAA-Cref can help you determine asset allocation with tools to help you decide on the right mix of investments.
  • Charles Schwab’s Roth vs. Regular 401(k) Calculator can help you decide which type of account to use.

4. Don’t Underestimate the Power of Compound Interest

If you’re patient and disciplined, your money can work for you and make a real difference in your account balance over time. The key is the power of compounding. Think of it as the snowball effect that happens when your earnings generate even more earnings. You receive interest not only on your original investments, but also on any interest, dividends, and capital gains that accumulate. There is no better place to see this than in retirement accounts, where principal is allowed to grow for years tax-deferred or even tax-free.

An example:

Let’s say you begin with two separate $10,000 investments that each earn 6% a year. In one $10,000 investment, you withdraw your investment earnings in cash each year, and the value of your account always stays at $10,000. In the other investment, you don’t cash out your earnings, you reinvest them. After 20 years your investment will have grown by more than $20,500 to $30,627. After 40 years, your investment will have grown by more than $92,000, to $102,857.

Compound interestThe New York Times has a great interactive calculator that shows what just a 1% increase in savings can become in time thanks to compound interest.

5. Automate Your Savings


“The bears make money, the bulls make money, but the pigs get slaughtered.”

Savings works on a 40 year time scale, people do not live on 40 year timescales. Humans have a hard time preparing for the next day, so you can’t trust yourself to make the right decision each paycheck about saving.

The most painless way to save is to do it automatically, take your decision making out of the mix. I don’t miss the $12,000 I put into maxing out my 401k each year, after my employers match, because I never even see the money, but given the opportunity to spend it, I would. Would I be able to come up with a spare $12,000 at the end of the year? Probably not.

Given the choice most people won’t sign up and contribute to savings, but oddly enough if saving is a default and the choice is whether or not to opt out most will. Make saving your default, make it something you would have to go through work to opt out of. Automate not only your 401k, but some money to your investment account, IRA, emergency cash savings, etc… and you’ll be much better situated for retirement without feeling like you sacrificed along the way.