4 Tips For Saving For
Your Retirement In
Your 20'sby Allan Oulate
If you’re in your 20s, you’re probably thinking you’re too
young to start saving for retirement. But the truth is, you should start saving for
retirement as soon as you can.
The sooner you start saving the more time your savings will have to grow. Starting young can make
an especially big difference because of compounding, a
phenomenon during which each year’s gains are able to generate
their own gains.
Unfortunately, many of the youngest people in the
workforce don’t save for retirement early. Here are a
few tips for saving for retirement while you’re in
your 20s:
Start saving
as soon as
possible
There are many reasons that young people put off savings.Perhaps you’re struggling to cover rent or pay off student
loans.
While these circumstances may make funding a 401(k)
challenging, it isn’t impossible. Your early 20s are your prime years to save for
retirement.
If you don’t start saving early on, you’ll regret it. This will
set you back in terms of retirement planning.
Invest
aggressively
According to a study conducted by Hewitt
Associates, workers between the ages of 18 and 25 usually
invest about 35 percent of their retirement savings in
bonds.
In the past, bonds have returned 5.4 percent per year,
which is just ahead of inflation and right around
the risk-free rate.
According to Ibbotson Associates, stocks tend to
grow at an annual rate of 10.4 percent.
Instead of investing 35 percent of your savings in bonds, you should invest about 90 percent of your
investments in stocks.
If you’re in your 20s, you have a long horizon ahead of you
and will be able to handle the ups and downs of the market.
Sign up for a
401(k)
When you set money aside for savings, put them to good use.
You need to invest them in a way that can help your assets
grow at the fastest rate possible.
The best place to start is with a 401(k), if you’re eligible to participate in one at work.
A 401(k) is helpful for a number of reasons, but the top reason
is that the majority of employers match your
contributions as an incentive for you to participate.
The only catch is that sometimes you need to save a certain amount of money for
them to match your contributions.
The only catch is that sometimes you need to save a certain amount of money for
them to match your contributions.
If you don’t have
a company
retirement fund,
use a Roth.
Perhaps you aren’t eligible for a retirement fund that gets
you matching funds. The next best option is a Roth IRA. This
is funded by money that has already been taxed in your
normal paycheck.
However, withdrawing money from a Roth IRA later is tax-
free. Make sure you get in the habit of saving by using
automatic deposits.
Each month or every few weeks, have a portion of your
paycheck or bank account payments automatically deposited into the Roth.
Saving for retirement may seem like something you don’t need to worry about, but the earlier you save the better.
Your early twenties are the perfect time to save for
retirement. If you follow these tips, you’ll be able to save for retirement while
still paying your other expenses, and your savings
with grow rapidly.
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