The earlier you start paying for retirement, the easier it will be

Ask a 35- or 40-year-old to make a list of financial priorities, and saving for retirement probably won't score very high. If they have a family, the list is more likely to be headed by things like food, clothes, schools, housing, cars, insurance, entertainment, vacations, and college savings. Retirement, if it gets listed at all, will be found near the bottom.

Slowly, however, a change is taking place. Perhaps it's all the publicity about individual retirement accounts (IRAs), or those company meetings and memos where 401(k)s are explained. Whatever, some people in their 30s and 40s are beginning to think seriously about a time that may be as much as 35 years off. Some are looking even further ahead.

``I'm 28. I've thought about this some myself,'' says Perry Brandorff, an actuary in the Dallas office of Hewitt Associates, a benefits consulting firm. ``I want to do something about my retirement -- so long as it's convenient.''

While helping companies develop retirement savings and pension plans gives Mr. Brandorff more awareness than the average 28-year-old has of the need to save for retirement, his desire for convenience is not unusual, other pension experts note.

``It depends on the individual,'' says Barbara Manning, a financial planner with IDS Financial Services in Houston. ``A lot of people are interested; some are not. Some young people have seen their grandparents in poverty and they want to make sure they're not in that situation.''

``It's pretty much of a split situation,'' agrees Anthony Nicoletti, a financial planner with Advest Inc., a brokerage. ``Half the people are concerned about how they're going to live at retirement. Then there's the person who's looking to buy a fancy new car. They're not thinking about things down the line.''

Still, many in the latter group do have IRAs or participate in 401(k) plans, though not always because of concerns about retirement.

``Retirement may not be the driving force'' for having an IRA, Brandorff observed. Instead, tax savings are often mentioned more frequently by younger workers as a reason for starting IRAs, he says.

``The prime reason'' for most IRAs and 401(k)s, contends William Miner, an actuary with the Wyatt Company, another benefits consulting firm, is the tax savings. ``There are too many other demands on younger people. And so they perceive, rightly or wrongly, that those demands are more pressing than retirement.''

If the tax-saving feature has indeed been a big incentive for IRA and 401(k) participation, that incentive is about to get smaller.

Under tax reform, couples earning more than $50,000 a year will no longer be able to deduct any of their IRA contributions from taxable income. Couples earning between $40,000 and $50,000 are to get only a partial deduction, while couples earning less than $40,000 will still get the full IRA deduction. Everyone, however, will continue to benefit from tax-free compounding of interest and dividends until withdrawal at retirement or earlier.

But since the bulk of IRA contributions have come from couples earning more than $40,000, it is not known if these people will continue to feed these retirement kitties after this year.

In addition to the now-disappearing tax incentive, another factor pushing many younger people to do more of their own planning for retirement is concern about the future of social security, even though most experts feel those concerns are largely unfounded.

``Social security will be there when I retire,'' Brandorff says. ``I don't think most people who understand how social security works worry about it. However, the benefits may not be as great.''

Also, social security payments are now taxable for some people, a change many thought would not happen. If that change can be made, the reasoning goes, some changes in benefits may also occur. Developments like these, Brandorff believes, make it even more important for individuals to strengthen the two other legs of what is often called a ``three-legged stool'' of social security, the company pension, and individual savings and investments.

Another advantage to starting to save early, he says, is convenience. ``Before the mid-30s or early 40s, it is simply more convenient to save for retirement.'' With enough time, and helped by the magic of compound interest, you don't have to put away as much each year to arrive at a comfortable nest egg, if you have 25 or more years to save.

In addition to requiring smaller bits out of your paycheck, the options are greater for those who start young. While people with only a decade or so left until retirement should be careful about where they put their money, to cut down on risks as much as possible, younger people can and often do try investments with greater growth potential -- but also greater risk. If some of those risks don't pan out, you have time to make up any losses.

While a 55-year-old might never include antiques, stocks of new high-tech companies, or aggressive-growth mutual funds in a retirement portfolio, such investments might be just the thing for a 35- or 40-year-old. If one of those fast-growing companies instead makes a fast exit from the business world -- as long as you have other more stable investments to help cushion the loss -- there will be time to look for new and, if possible, more-winning investments.

But what do you do if you think your paychack is tapped to its limit -- that after mortgage payments, clothes, food, education costs, insurance, and other bills, there's nothing left for retirement savings?

First, start small. Even without the deduction, IRAs can still build up to a sizable level with the help of tax-free compounding. Don't be put off by the $2,000-a-year level. If you can put in only a couple hundred dollars a year to start, do that. Many banks and thrifts have very low limits for IRA deposits. You may be able to keep an IRA fed for as little as $25 to $50 a month.

If your company has a 401(k) salary reduction plan -- or 403(b) for teachers and nonprofit organizations -- look into it. (If there isn't such a plan, see what you can do to get one started.)

Because contributions to 401(k) and 403(b) plans do not count as part of your taxable income, putting money in one may not hurt as much as you think. Putting 5 percent of your salary in a 401(k), for example, may cut your take-home pay by only 2 or 3 percent.

Another idea, but probably for those with a little more money to work with, is to aim for early retirement. Several people have saved, invested, or started businesses with the idea that they were going to retire -- or at least stop working so hard -- by the time they were 55 or perhaps younger.

When they get to 55, they may decide to keep working -- many people do -- but having that head start has given them an even greater cushion for retirement.

This strategy, like others mentioned in this article, still requires a change in thinking: Saving for retirement is not just for the last decade or so of work; it has to begin decades before the retirement party.