First, I’m sorry for laying this out. Do you put a small amount of each and every check into your “retirement” account? Do you feel good that you are planning for the future? Ummmm, Check my math:

Say someone saves $50/check = $100/mo into a retirement or savings account. That amount rounds to just over $1000/yr.

Say your family is in the middle of the middle class-ish. Maybe you spend $3000 or $4000 per month.

Here’s my simple math. Saving $50/check=$1000ish/yr—you have to save for 3 to 4 YEARS to pay for ONE MONTH of retirement, ONE FREAKING MONTH (ignoring pension or possible social security in retirement—ignoring growth/compounding as well)

So to pay for one year of retirement spending at the savings rate of $50/check, it will take 30-40 YEARS of small monthly savings to live one year in retirement.  That’s a lifetime of savings for a very, VERY short retirement.

I know what you’re saying, and you’re right—your money will compound and grow with the rule of 72. Yes, that is true. And it’s also true your expenses will compound with inflation using the rule of 72 as well. Hopefully, inflation is far lower than your rate of return/growth.

OK, now forget your far off “retirement.” What if you have an emergency now? Bad stuff happens. Job loss, medical bills, family crisis, car problems, house breaks down, natural disaster… If your emergency fund is built at the same $50/check rate, it will take 3-4 years to save 1 month’s equivalent spending in your emergency fund. Better hope for the best for 30-50 months to get a little cushion built up.

Simple example:

This simple calculation does not include investment growth or inflation raising the cost of items/living.

This is why financial people say you should save 15% of your gross pay (not take home pay).  $50 is nowhere near 15% of your paycheck.

I grew up hearing about saving 10% of your gross income, yet I believe that was when a company pension covered much of a retirees bills. Not too many company pensions setting us up for retirement.

In a perfect world, the above household would retire with 25 times their pre-retirement income spending amount in savings. You will often see “25X” used for the 4% Safe Withdrawal Rate calculations. …More on that in the future.

So, Increase your damn savings rate! Push for 1-2 months spending amount in your emergency fund (in your Roth IRA) in the next 12 months or so. Having a solid reserve feels amazingly good.