Retirement Account Longevity

Posted by: Sophie H. | Dec 20,2007


The best thing for a credit history is longevity.  One of the reasons to keep an old credit card account around, even if it has bad terms, is because it elevates your credit standing.  A 20-year-old credit card account with meager terms is better for your credit history than a brand new card with great terms.  So when deciding to keep a credit card, you’ve got to think about the long term, not just what you’re saving on the card month to month.  

The same goes with retirement planning.  You can’t just look at the money you’ll be putting into a retirement account in the short term.  You might be struck with a thought like, “Gee, I could really use that $400.”  Look at it this way, $5000 a year put into a high-yield account (at least 7%) could generate as much as $40,000 down the line.  That’s a huge payout, even if you have to wait decades to bear the fruit.  

With the economy struggling, you’ve got a few concerns.  Should you save money now for a time in the near future when inflation is high and interest rates go up?  If so, it can seem less attractive to lock savings within a retirement account, no matter how attractive the terms are in terms of interest or matching funds.  What about paying down debt?  If you don’t pay down your debt now, the interest on high-rate debt can absorb what you’ve effectively saved in a retirement account.  That $40,000 in a Roth or 401(k) could be cut by half, if not more.  

The answer is that you’ve got to do all of the above, if at all possible: pay debt, invest, and save in an accessible emergency fund if times get tight in the near future.  But you should not sacrifice your retirement fund completely.  Often this is the first thing that goes when immediate financial problems arise.  30 years just seems so far away.  Just  putting $50 a month, or whatever you can afford, towards your retirement account will pay off in the long-term.  Decades down the line, you’ll be grateful you planned ahead and didn’t neglect your retirement savings entirely.  

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