When you’re just starting out in your career, retirement may be the further thing from your mind. But because retirement savings use compound interest, you’ll be better off the earlier you begin saving.
So where do you start? Jumping into retirement savings while you’re in your 20s and focusing on growing your contribution in your 30s can help set you up for success.
Saving for Retirement in Your 20s
Where to start
It can be difficult to plan to save for retirement in your 20s and 30s because it seems like such a long way off. However, contributing to your 401(k) is most effective in your 20s. Because 401(k)s use compound interest, your money will grow more the earlier you save. When starting out in your career, learn about the retirement plans offered by your new employer and whether the employer will match your contributions. Sometimes, employers don’t start matching until you hit a certain age, but that doesn’t mean you should wait to start putting money away into the plan. If your employer doesn’t offer a 401(k), look into a Roth IRA. You’ll put in post-tax dollars, but you won’t be taxed on it when you withdraw it when you retire.
Where to save
One of the most important pieces of your finances to focus on in your 20s is building your emergency fund. Most likely, you didn’t have one early in your 20s. Once you start steadily earning money, it’s important to start building those emergency savings, even if it’s just a little bit at a time. You should work towards having at least a few months of living expenses put away. However, it’s not impossible to contribute to an emergency fund and to your retirement fund at the same time. Carefully consider your budget and make both a priority. In fact, having a robust emergency saving can help prevent you from dipping into retirement savings in case of a financial crisis.
How to catch up
In your 20s, it’s easy to get back on track if you’re feeling behind on your retirement goals. Take a look at your budget and see if you can free up some room to contribute more to your retirement. Set smaller goals, such as how much you want to have saved by the time you’re 30, 40, etc.
Saving for Retirement in Your 30s
How to continue
In your 30s, continue to contribute to your 401(k), and if you can, increase your retirement contributions as your income increases as you advance in your career. You also might want to consider opening an individual IRA at this point to help supplement your savings.
How to save
As always, budgeting will be key in making the most of your retirement savings in your 20s and 30s. In your 30s, you may also want to start investing in other manners and considering diversifying your investments. Also, be aware of how changing jobs can affect your retirement savings. For example, your new employer may offer different benefits than your previous employer, which may involve transferring your savings. Or, a prospective employer may not offer as sufficient benefits as your previous employer. Your retirement investments should play a role in your life choices.
How to catch up
As always, re-examining your budget will be crucial. Additionally, try to pinpoint why you fell behind or aren’t meeting your goals. Work to address the problem and ramp up your contributions. If you’re not bringing in enough income to make your budget work, decide if you have the opportunity to make more money at your current job or to get a side gig.
It may seem strange to even be considering saving for retirement in your 20s and 30s. But in reality, it should be something you’re thinking about as soon as you get your first full-time job. Getting a jumpstart early in your career will give you the boost you need to retire comfortably.
For more tips on how to save for retirement, visit the Tayne Law Group blog!