Saving for Retirement


How to Build Wealth the Old-Fashioned Way

Matthew Mahon/Redux

Chris and Krista Marren of Glen Mills, Pa., have saved $1 million for their retirement.

With four children age 11 and younger, Krista and Chris Marren have plenty of demands on their pocketbook. Even so, the Glen Mills, Pa., couple, who are in their early forties, have amassed $1 million in their retirement accounts, with plenty more years for them to save and for their earnings to compound.

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Krista, who works in business development for a software company, and Chris, a vice-president at an insurance brokerage and consulting firm, both earn six-figure salaries, which makes it easier to stash the maximum each year in their employer-sponsored 401(k) plans. Even more important, though, is that they started early, and they’ve taken a slow-and-steady approach to accumulating wealth. Their strategy could pay off big for you, too. (For more on how a patient approach pays off, see 5 Tactics That Help Patient Investors Prosper.)

Save regularly. For starters, the Marrens have saved consistently. “There have been a couple of times when we’ve looked at changing our contributions, when we had three children in day care full-time and one part-time,” Krista says. “But for retirement, I feel like I would regret doing anything differently.” Chris puts away 9% of his salary, and Krista, 11%, not including company matches and contributions from annual bonuses.

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Taking a break from saving can deplete your nest egg significantly. Someone who saved 13% of a $40,000 salary starting at age 25 would be able to replace 50% of his income in retirement starting at age 65 if he withdrew 4% of his assets in the first year of retirement (assuming an annualized return of 7% and annual 3% pay increases), according to research by T. Rowe Price. But if he stopped making contributions for five years starting at age 45, he would then have to boost his savings rate to 19% to replace 50% of his salary in retirement.

Set goals. Starting early also helps. Krista began putting away money for retirement when she got her first full-time job in 1992. “My dad talked me into opening an IRA,” she says. “It was a difficult sell for him because that was the last thing I wanted to do right out of college.” Chris has always taken advantage of the opportunity to invest in his employers’ 401(k) plans. The early start gave their savings time to grow. The couple have also set goals. They use separate savings accounts for vacations and Christmas gifts. And for college savings, Krista and Chris have taken what they used to spend for day care and put the money into 529 college-savings plans.

These strategies have helped the Marrens balance immediate demands with retirement saving. “It’s important to be clear on what your goals are,” says J.D. Roth, founder of the personal-finance Web site Get Rich Slowly. “It’s difficult to make smart choices when deciding between, say, saving for retirement or for a down payment on a large, expensive home.”

Keep it simple. You don’t have to be a savvy investor in order to get rich. “I don’t try to play the market,” says Krista. “The only thing I can do is put away as much as I can.” The couple’s portfolio is made up of broad-based mutual funds and exchange-traded funds. They’ve also given themselves a simple savings goal to max out their 401(k)s, which has gone a long way toward helping their account balances grow.

“People do better at achieving goals when they set out rules for themselves,” says Katherine Carman, an economist at the Rand Corp., a global think tank, who coauthored a paper in 2009 about how individuals make retirement-planning decisions. In her research, Carman found that individuals without any guidelines saved an average of 3% of their salary. Those with a plan saved 10% to 15%.

Chris regularly crunches the numbers to see if the couple is on track. But for Krista, the simpler approach of sticking with the plan has given her peace of mind. “I feel good about retirement because I know we’re doing the most that we can,” she says.

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