Saving for retirement in your 20's

28 Jul

How to Start Saving for Retirement in Your 20’s

How to Start Saving for Retirement in Your 20’s

When you’re in your 20’s, “retirement” is probably not a word you think about often. Your golden years seem eons away, but how can you start saving for retirement in your 20’s?

Whether you have your dream job, are still making your way through college, or are working part-time, the time to start laying a solid foundation for your retirement saving efforts begins in your early 20’s, if not sooner.

Depending on your preferred annual income throughout your retirement years, you’ll need to have upwards of $1 million ready when you retire (and that number needs to factor in the rate of inflation).

Simply saving money in the bank won’t get you there. For example, if you begin putting money into your savings account starting at age 20, you’ll need to put back around $1,700 every month simply to reach $1 million by the time you reach the retirement age of 67. And that’s including a compound interest rate of .15%.

The bulk of any solid retirement fund is derived from investing, and with any good investment it only matures and grows over time. So, the earlier you can begin, the better!

While you may not have much discretionary income to put away into your savings account, let alone a retirement savings account, here are a few actionable steps you can take today to start taking steps toward a stress-free retirement.

  1. Create a Budget

Taking control of the money coming in and out of your bank account each month is the first solid step you’ll need to take in any financial planning process. We recommend using a trusted, well-reviewed budgeting app like EveryDollar, You Need a Budget, or Mint.

  1. Start Saving

You may just be starting out in your career, graduating from college, or simply working part time at the moment – either way, when we’re in our 20’s, we usually don’t have much money to set aside. The key is to just start saving. Analyze your budget and determine areas in which you can cut back or cut out.

Simply saving $35 a week equals $1,820 a year. In five years, you’ll have around $8,500 in your savings account! This will provide a great emergency fund as well as a solid initial investment when you do begin investing.

  1. Prioritize Debt

Before you ever begin investing, getting rid of debt should be your primary focus. As long as you’re in debt, you’re spending, saving and investing money you don’t have. This even includes student debt.

Speak with a financial advisor and create a plan for you to tackle and pay off your debt in its entirety, no matter how long it takes, before you begin investing.

  1. Small Steps for Great Reward

The thing to remember when saving for retirement is that the process is not a sprint, it’s a marathon. Consistency, not speed, is what will get you to the finish line – the retirement era of your dreams!