Start saving early and often

Your Money

February 11, 2007|By Janet Kidd Stewart | Janet Kidd Stewart,Chicago Tribune

When's the best time to start saving for retirement?

As soon as you start working, goes the mantra of financial experts, with their spreadsheets showing the miracle of compounding. Save even small amounts over a very long time horizon and you are likely to have more than the people who started socking away big percentages of their incomes in their 30s and 40s.

Sounds easy enough, but a newly minted college graduate frequently has education and credit card debt, not to mention a rather paltry starting salary and a need to set up a new household and wardrobe for working life. How to balance it all?

Instead of aggressively paying down student loans, pay the minimum and sign up for your 401(k) plan at work, said Carrie Schwab Pomerantz, chief strategist for consumer education at Charles Schwab & Co.

Then cut out one excess in your daily spending - did anyone say latte? - and open a Roth individual retirement account, she said.

"At $3 a day, that's about $100 a month, and that's over $300,000 in a 40-year period," Pomerantz said.

Dr. Kate Carlson, 29, and Dr. Dan Dulek, 28, residents at Children's Memorial Hospital in Chicago, are proof that you can save even as you're starting out. After college, they each spent four years in medical school before beginning their resident training programs at Children's.

They were married during residency and today live in a $1,500-a-month, two-bedroom apartment in Lincoln Park, the hospital's pricey Chicago neighborhood - with no financial assistance from relatives.

Dulek has substantial loans from medical school. Carlson received scholarships, but the combination of the loan debt and expensive city living has made long-term savings a challenge. As residents, they each make about $40,000 a year.

But each puts 10 percent of salary into a 401(k) plan through the hospital, and they're saving an additional 10 percent for more immediate goals, like a coming international medical mission trip.

The secret to their success? Making retirement a priority over saving for a house, and putting their savings on autopilot.

"The automatic deductions for the 401(k) mean we don't even see the money, so we don't spend it," Carlson said.

They also sold one of their cars when they moved to Chicago from St. Louis, and they pick up occasional moonlighting shifts to boost their income.

They credit their fathers for a commitment to long-term savings goals, even through the process of becoming doctors. Dulek's dad is a business professor, and Carlson's dad instilled an early bug about money in his daughter through a now-defunct children's personal finance magazine when she was in elementary school.

And when they were choosing the next step along their career paths, the couple decided to put additional training fellowships on hold. With residency complete this summer, they'll work as general pediatricians for the Yakima Valley Farm Workers Clinic in the state of Washington. The organization will pay up to $50,000 of Dulek's education loans, and they'll double their salaries from residency.

Eventually, Dulek wants to train to become a pediatric infectious disease specialist, and Carlson wants to be a neonatal intensive-care physician. That will mean more years of comparatively low salaries by physician standards, but they plan to continue contributing to their retirement accounts throughout.

The couple seems to be getting the retirement game plan right, said Denisa Tova, a financial planner in Colorado Springs, Colo.

"There's a little psychology that goes into planning in the early years," said Tova, who works with many younger clients.

She sees some twentysomethings who are saving nothing because they came from parents who slaved over a budget and can't stand the thought of living that way, or others who are saving to the exclusion of having any fun in life.

It boils down to this, agreed the financial experts, as well as Carlson and Dulek: Long-term saving isn't discretionary, it's mandatory.

Have a retirement question? Write to, or via mail at Your Money, Chicago Tribune, Room 400, 435 N. Michigan Ave., Chicago, Ill. 60611. If your letter is selected we may include you and your question in a future column.

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