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Feature Article

This article is part of the Missouri Saves Program

Preparing for Retirement? Pay Yourself First!

Brenda Procter, State Consumer and Family Economics Specialist; adapted from Sencindiver, C. & Metzen, E. Strategies for Retirement Saving, GH3530, University of Missouri Extension, June 1991.

Thinking about retirement? If you are, that's great. If you're not, chances are you might want to start! The earlier in your working life you begin to think, plan, and prepare for retirement, the more likely you will meet your retirement goals. Many experts recommend that planning begin as early as age 25 or 30, while you're still young enough to reap big benefits from years of compound interest. 

Financial security in retirement can't be taken for granted. In 2001, about one in ten people age 65 and older (10.1%) lived below the poverty level. Certain segments of the elderly population had much higher rates of poverty. For example, 26.4% of women without husbands and who were 65 and older, lived below the poverty level in 2001.

Though you may well get Social Security benefits when you retire, those alone may not allow the level of living you would like in retirement. An employer's pension plan may also give you a monthly check in retirement, but before you retire, inflation may reduce the amount of goods those dollars will buy.

As important as saving for retirement is, you must also have your "financial house" in order. What does that mean? It means first taking care of the more pressing financial needs of yourself and your family. 

  • Do you have adequate amounts of life, health and disability insurance? 
  • Is your property, including auto, home and personal possessions, adequately insured? 
  • Can you currently live within your income? 
  • Do you have a fund for emergencies?

If you answered "yes" to all of these questions, it is time to set up a retirement savings plan. If current expenses exceed current income, you may need extra discipline in controlling spending or added income to cover expenses before starting to set aside funds for retirement.

Planning for retirement always involves uncertainty, because we can't predict the future. We can, however, take steps toward financial security and remove some uncertainty if we have a solid retirement plan in place.

Think of retirement planning as a balance of three different components: 

  • Social Security 
  • Private pensions 
  • Your own retirement fund

The 65+ age group relies more on Social Security benefits than on any other source of retirement income - 92% of those 65 and over receive an average of $9,786 each from Social Security. About 31% have average pension income of $12,288 each, and 36% of those 65 and older get about $11,746 each in retirement income.

If you are very disciplined and highly motivated, you may make periodic contributions to a retirement account without having it deducted from your checking account. You know how important it is to "pay yourself first" and faithfully do so every pay period.

If you are like many of us, though, you plan to save for retirement whatever money is left over at the end of the month. Unfortunately, many times all you have left at the end of the month is unpaid bills. We all tend to spend what we have in our account.

Setting Money Aside

How can we accumulate retirement funds? One way - not always the most popular - is to postpone current spending so that money is available for spending in the future. If we can't get our spending under control, it is difficult to grow a "nest egg" for retirement. "I'm going to pay myself first" is easier to say than do.

To get started on your retirement nest egg, develop the habit of setting aside money in a retirement account every time you get paid. The habit itself can be as important as the amount of money you put into the account at one time. The earlier in life you start saving, the easier it is to build a retirement nest egg - even if you can't afford big amounts at first.

Payroll deduction is one of the easiest ways to make regular payments to a retirement fund. This is often available through your employer. You choose the amount of money you want to save and it gets deposited in a separate retirement account before you have a chance to spend it or even see it.

Payroll deduction has several advantages: 

  • It occurs with regularity 
  • It requires no effort on your part; 
  • You don't have to remember to deposit the funds each payday
  • You are less tempted to use the funds to buy something

Some people attempt the habit of putting all "windfall" or unexpected money into a retirement fund. If you are disciplined and unexpected funds come your way often, that strategy might be a good one, but it can have some disadvantages: 

  • Windfalls may not happen frequently enough 
  • Windfalls may not be big enough to adequately fund your retirement 
  • It is always tempting to use windfalls for immediate consumption and not save it for later

It is also interesting to note that as of April 1, 2006, the Federal Deposit Insurance Corporation (FDIC) raised the deposit insurance amount for some retirement accounts from $100,000 to $250,000. This may help some consumers feel more comfortable about their retirement savings held at banks or savings institutions. For complete information, see FDIC Consumer News.



Annual Demographic Survey, March Supplement, U.S. Census Bureau, September 2002.

Federal Deposit Insurance Corporation,

Proctor, B.D. & Dalaker, J. Poverty in the United States: 2001, Current Population Reports, Consumer Income, U.S. Census Bureau, September 2002.



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