When you’re in your 20s—fresh out of college, relatively new to the workforce—retirement can seem like a distant fantasy. The temptation is to forget about it entirely, writing it off as something you can think about in a decade’s time, if not longer. The problem with this is that, while it is never too late to start planning for your retirement, it is advantageous to begin as early as possible. Those who begin planning in their 20s will be that much better prepared for a secure retirement once age 55, 60, or 65 rolls around.
But what can a twenty-something do to start getting those retirement ducks in a row? A few tips follow.
First, understand the basics. Your retirement portfolio will be better-served by you grasping the fundamentals of compound interest—that is, the reality that setting aside a small amount of money early in life will actually yield greater returns than setting aside a larger amount much later. Understanding compound interest will motivate you to begin saving now.
It is also important to develop a savings habit. The best way to do this might be to join your employer’s sponsored 401(k), or to meet with a financial advisor to set up an IRA, and then establish a set percentage of your paycheck that you put into your retirement portfolio—every month, before you do anything else with your paycheck.
Increase your retirement contributions each year. When you get a raise or a bonus, kick some of that money into your retirement investment.
In addition, you might try to set aside some money to pay off debts. One of the worst retirement planning mistakes you can make is retiring while still in debt. Make it a monthly priority to pay off student loans, car payments, and any other outstanding debts you have.
It also helps to spend less, which will enable you to save more. There are too many money-saving methods to list here, but the best thing you can do is to set up a budget and stick with it. Budgets aren’t just for married couples and families, but for anyone looking to exert control over everyday spending!
If possible, put some of that money you save into an emergency fund—which probably doesn’t need to be more than $1,000, or whatever you can put together—to help defray the costs of a major emergency, such as a problem with your home, health, or automobile.
All of this may sound like a tall order, but prudent retirement planning is very doable, and very affordable—even for those still in their twenties! To learn more, we invite you to contact the Stonepath Wealth Management team at your convenience.