It has been said that the best time to plant a tree was twenty years ago, the second-best time is today. This is an old proverb that recognizes that, in retrospect, there are things we wish we’d done earlier, decisions we wish we had made, or opportunities we wish we had seized. However, the proverb doesn’t dwell on regret or the inevitable passage of time. Instead, the underlying message here is the importance of action. In a world filled with distractions, procrastination, and competing priorities, it can be all too easy to put off important tasks or decisions, believing that there will always be a more opportune moment in the future. However, the wisdom of this adage challenges this assumption, asserting that the most opportune moment to act is often the present.
And this idea applies perfectly to saving for retirement too, for savers of any age. Are you in your 40’s or 50’s and worried that you haven’t saved enough? Are you behind the savings benchmarks you read about online? There’s no time like the present to take definitive action to save more and improve your future situation. In fact, for most folks, the ten-to-fifteen years leading up to retirement are typically the best time to assess your progress to date and take steps to ramp it up if you aren’t where you hoped to be.
I recently had a similar conversation with my oldest daughter, Maeve, who is working as a nurse at Duke hospital. With a new year rolling around, this presented an opportune time for us to reconnect on her employer retirement benefits and ensure she’s taking full advantage of them. At 23, she has decades before retirement becomes a reality for her, but I explained the importance of planting that proverbial tree sooner rather than later. The time value of money, and the power of compounding interest make early investing a huge advantage for savers. In Maeve’s case, the sooner she maximizes contributions to the 403(b) that Duke offers, the fewer financial regrets she’ll experience twenty years from now.
For example, if she invests $200 per month starting at age 25, earning 6%, she would have over $370,000 at age 65. But let’s say she waits until age 35 and invests that same $200 each month. At age 65, she has only $190,000. In fact, at age 35, she would need to contribute almost twice as much each month to reach $370,000 by age 65. This makes a strong case for starting earlier to make your money word harder for you. And this week, let’s look at options for doing just that by taking advantage of your company retirement plan, which might be a 403(b), 401(k), or other qualified plan available.
Now, folks, it should be a no brainer that you should contribute to your employer plan if they provide one, especially if they offer matching contributions. To forego this is giving up free money, and nothing beats free money these days.
With a company retirement plan, you make your contributions through payroll deduction. The amount comes right out of your check, making it a nice way to ensure you don’t find other “uses” for the money and rob your future self. The amount you contribute is expressed as a percentage of your gross pay. The contribution rate that is appropriate for you depends on various factors, including how old you are when you start contributing, whether your employer provides matching contributions, and how well your current salary covers your expenses.
As I demonstrated above, your potential to build wealth is directly linked to your timeline. The longer your timeline, the more time there is for your invested funds to grow. The maximum allowed 401(k) contribution is set by the IRS annually, and in 2025, the limit is $23,500 or $31,000 if you are over 50.
Matching contributions from your employer are a common practice. For example, your employer might match 100% of your contributions up to 3%, plus 50% of your contributions on the next 2%. Under these rules, you would need to contribute at least 5% of your salary to get the full employer match. As an added benefit, your contributions are deducted on a pre-tax basis which reduces your current taxable income. You’ll be taxed on this money once you withdraw it in retirement.
Of course, the more you can save earlier on, the more you’ll accumulate over time. But many folks in their 20’s and 30’s find themselves with numerous competing financial priorities, including student loan payments, mortgages, childcare and more. To help make saving easier, you might tackle it using an incremental approach. For example, you might start with 2% this year and increase that by 1% each year up to the maximum contribution allowed. After all, even small amounts, if invested, can compound and grow over time.
Some 401(k) plans have an auto-escalation feature that increases your contribution rate automatically. You set the terms, including the amount of the increase and when it steps up. You might consider planning this increase to coincide with the time you expect an annual raise.
Whatever your age or your savings goal, taking action now is always better than putting it off. Whether you’re just getting started or need to really kick your savings into high gear, let time be your friend. Your future self will thank you!
And as always – be vigilant and stay alert, because you deserve more!
Have a great week.
Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield, MA.
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