When you’re fresh out of school and entering the workforce for the first time, saving for retirement may be a distant thought. Sure, it’s a good idea, but maybe one you can focus on later in knowledge.
You probably have a lot of excuses for not saving, too. Repaying student loans, first time living expenses, a new wardrobe and other ‘adult’ costs are forces to be reckoned with. However, if you can get into the habit of saving while you are young, you’ll end up with quite the nest egg.
If you aren’t in your 20s, you can read more about retirement in at any age:
- Retirement Savings: In Your 30s
- Retirement Savings: In Your 40s
- Retirement Savings: In Your 50s
- Retirement Savings: In Your 60s
RETIREMENT SAVINGS IN YOUR 20s
Pay Yourself First
Your first full-time job out of college will probably be the most money you have ever made. When your paycheck arrives, the first person you ought to pay is yourself. A new purse or a night out on the town isn’t what that means. Instead of spending your funds right way, get in the habit – right from the start – of using automatic withdrawals.
Put five to 10 percent of your paycheck into a company-sponsored 401(k) or similar account. More often than not, your company will subtract your contribution before your paycheck even hits your account, which means it’s one less reminder you’ll need to set. And, if your company matches 401(k) contributions, it’s like you’re getting paid to save!
No matter what retirement avenue you use, set up automatic payments that occur the same days your direct deposit lands. Using this method, you won’t miss money that, for all intents and purposes, you never had. Until you check your retirement account years later.
In Your Best Interest
A recent report from Bankrate found that sixty-nine percent of people aged 18 to 29 years old don’t have a retirement account. While many may be in fact saving money for a rainy day, they’re not putting money toward a dedicated retirement account such as a 401(k) or Roth IRA. The issue here is missing out on compound interest.
Let’s say that a 25-year-old opens a Roth IRA with an average rate of return of seven percent and puts away a yearly contribution of $1,200 (or $100 a month). By retirement at age 65, with a marginal tax rate of 25 percent, that account now carries a balance of $1,201,741. Over a million dollars! Now, imagine what that total could be with increased contributions and diverse investments.
Even if it is only $20 a month to start, the money that you put away now puts you way ahead of your peers that aren’t saving. Think how much more financially comforted you will be. Think about how much less you will have to worry. Isn’t that more important than that purse or concert you were going to attend?
Start At The Beginning
Not sure how to start your retirement account or what you need to know before opening one? Ask for help! Many people have been there and done that and will happily offer assistance. Ask your tax professional or a finance guru at work how to get started.
There’s also a wealth of resources available online to help you establish a firm financial footing. No excuses, 20-somethings, the best time to start saving for retirement is long before you’ll need to – and your future self will thank you!