In 2017, the maximum you can save in a tax deferred account is $5,500 for an IRA (individual retirement account) and $18,000 for a company sponsored retirement plan 401(k). While most of us are probably nowhere near saving that much for retirement, there are a few young professionals that are. I recently had the chance to sit down with one such yopro and talk about this crazy notion of maxing out their retirement. Per his request for anonymity, we’ll call him John.

I first met John a few years back when he was a fresh out of college. As I often do, I tried to instill some financial wisdom in this recent college grad and make sure that he was saving for retirement. I started out with my normal spiel about how saving for retirement is so important and how starting early can lead to big gains down the road as the investments have time to compound. Much to my shock, not only was John aware of ideas, but he was already actively saving for retirement into the company-sponsored 401(k). What blew my mind though, was the fact that he was maxing out his retirement account contributions. No, not the $18K as allowed by the tax code, but the maximum amount allowed by our company, or 33% of his salary. Whoa. John was fresh out of college, first job with a real salary and he was putting away a third of his paycheck into retirement. This was money that he wouldn’t see for 40+ years until he actually retires. Amazed by his unusually zealous saving patterns, I decided to seek out more information.

The why

One of the first questions I wanted to figure out was ‘why’? Why in a culture that seems to live so much in the here and now (“YOLO”) that focuses on having fun while you can and planning later would someone put away 1/3 of their paycheck into retirement? What about trips, eating out, happy hours, movies, clothes, new cars, expensive vacations? John spoke of his goal to combat the “live life now mentality” and explained how it’s all about balance to him. He said it’s important to know first where you are financially (take inventory and use a budget) and then also know where you want to be, and to be sure you’re living life while also achieving your goals as best you can.

John didn’t grow up in a rich family by any means, but did have parents that were financially minded and was a business major in college. John recounts a finance professor that left a lasting impact on him by explaining the idea of the time value of money. The professor pulled out a ‘dumb phone’, aka a flip phone and explained that he didn’t have an iPhone because it was so expensive. He explained that the $50/month or so he’d spend on an iPhone now would be worth potentially thousands of dollars in the future (the idea being that $50/month invested and having compounded growth over many years). This left a lasting impact on John who came to understand that money spent now has a greater value in the future. John doesn’t want to work until he dies, and wants to retire somewhat early, if at all possible. He’s got this financial goal and is taking steps to make it happen.

The how

John categorized his savings as one that involves saving until it hurts. He fully understands and appreciates the value of hard work (working a full time job in the corporate world) and certainly wants to enjoy his money. It’s definitely not easy for him to watch all that money be pulled out of his paycheck each month. However, he has a financial goal of having enough money to retire at a decent age, and is taking the steps necessary to help achieve that goal.

John was a lucky college grad, and graduated without much college debt. He went to a public university, in a state that had a generous scholarship program for students. He certainly could have gone to other, more prestigious and expensive schools but made the choice early on to avoid too much student loan debt. John also drives a pretty old car (he went without a/c one summer) that is paid for. Sure he could upgrade to something nicer, but John chooses to use his money elsewhere. John also lives with family to help save on rent (he does pay rent). Sure it’s not the nicest or most glamorous living arrangement but it helps him put aside extra money each month. Simply put, John definitely had a nice start post college (minimal debt, paid for car, sweet living arrangements), but these are all things that he continues to choose to maintain. He could easily move or upgrade cars, but chooses to maintain a balanced lifestyle. As John put it, it’ll never be easier than right now to save a lot of his paycheck, so he is trying to capitalize all he can!

The way forward

John saved 33% of his paycheck for the entire first year out of college. He was very clear to note how fortunate he has been and although he’s made the most of it, he certainly acknowledges how blessed he is. He has slowly decreased that over the years to a healthy 15% level. The rationale behind this decrease is that as John found himself on more solid financial footing (emergency fund in place, and a good start to his retirement), he is now focusing on other upcoming financial needs and is investing in those. He’ll have to get off his parent’s health insurance plan next year (turning 26) and his vehicle is starting to show signs of its age. John also wants to buy a house in the future and starting a family is definitely on his mind. Due to his financial goals shifting, he is able to reallocate his savings (he still is saving 33%, just not all to retirement) to other needs in his life. John still saves till it hurts and continues his minimalistic lifestyle. He knows it’ll never be this easy again (no wife, no kids, no house) to save, and will continue taking advantage while he can!

While it might not be practical for you to save 33% of your paycheck, hopefully hearing John’s story will be somewhat of an inspiration to you and maybe will help you save a little bit more. If John can do it, so can you!

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