Clever Ways to Start Preparing For Retirement in Your 20s

When you’re in your 20s, you’re at the prime of your life and planning for retirement is probably not the first thing on your mind. Many people believe your 20s are premature to start retirement planning, but they fail to consider the benefits of starting early. The decisions you make in your 20s can set the foundation for a stable future by creating a financial safety net and this includes your golden years as well.

Of course, you have other things to consider in your 20s, like vehicle loans, student loans, credit card debts, etc. Then you enter your 30s and 40s, and your focus shifts towards building a family and a home. Before you know it, the age of retirement starts looming, and you begin scrambling to build an adequate fund to help you live the rest of your life comfortably before the end of your active earning years. You can avoid such a situation by being prepared. When you start planning and preparing for your retirement in your 20s, you’re giving yourself more time to grow your small investments substantially.

If you’re wondering why you should prepare for your retirement in your 20s, here are some benefits of doing so:

  • It gives you financial independence
  • Helps to combat inflation and ever-increasing healthcare costs that are only expected to increase over time.
  • It offers peace of mind, knowing you have saved and planned enough to enjoy your retirement without stressing about money.
  • Comes with tax benefits that you can take advantage of in the present

Before we explore some clever ways of preparing for retirement in your 20s, it makes sense to understand how you can take charge of your finances first.

Have Clear Goals

Think about a perfect retirement lifestyle – the activities you want to pursue, the expenses you can expect, and where you want to spend your retirement days. When you have a clear plan, you can determine how much money you need to save and work towards building an appropriate-sized nest egg.

Assess Your Finances

When you take careful stock of your income, debts, and expenses from an early age, you will better understand how much you can invest for your retirement goals. As a bonus, you will also gain knowledge about other aspects of your financial present and future.

Consider Your Retirement Needs

It’s vital to roughly calculate how much you would need to prepare yourself for your retirement lifestyle. Some factors to consider include healthcare expenses, inflation, and other financial obligations. You can also use a retirement calculator (that you can find online) to gain a rough estimate of the required corpus.

Now, let’s get right into the crux of the subject by exploring some clever ways of preparing for your retirement in your 20s.

Start Right Now!

It’s easy to procrastinate planning for your retirement when it seems a long way off. But remember, the primary tip for retirement saving is to start saving now. The smartest way you can do this is by building the habit of putting a portion of your money into a retirement account whenever you are paid.

When it comes to saving and investing, nothing is too small. Let’s put it into perspective – if you invest $50 monthly into a retirement account from age 20 to 60, you’re amassing a total of $24,000. Assuming you get a moderate return, your $24,000 could be easily converted into a much more significant sum when invested in an individual retirement account or plan.

Have Automatic Payments Set Up To Your Retirement Account

Take advantage of automatic payroll deduction by setting a percentage to go right into your retirement account before it even hits your checking account. When you do this, you won’t be tempted to use that money for anything else. Even if your employer does not offer payroll deductions, you can still set up an automatic transfer from your checking account to your retirement account through standing instructions on your bank’s website.

Enroll In Your Company’s Retirement Plan

If your employer offers a retirement plan like a 401(k), make sure to sign up for it. Many companies offer this plan to encourage saving, and most will also partially match what you invest. Please take full advantage of this, as it’s free money. For instance, investing 6% of your payment and your company matches $0.5 on each dollar will put another 3% into your retirement account. This way, your 6% now becomes 9%. Think of this like a bonus or an additional salary. Plus, contributing to a 401(k) plan also offers tax benefits because funds used for retirement planning are tax-free. Since you are paying taxes on a smaller portion of your salary, your overall tax rate may also be lower.

Invest In Mutual Funds

Many investors choose mutual funds to save for their retirement. With a mutual fund, a manager buys shares of different companies, puts them into one fund, and then sells shares of that fund. You can buy partial shares in many companies rather than purchasing one share from one company. This way, your returns will be high because you’re investing in stocks, and since you’re not relying on one company’s success alone, your risk is low, too.

Get Expert Advice

Planning for retirement is a huge undertaking – particularly if you plan on investing. Suppose you don’t know the nitty-gritty details of investing to choose the ideal option for your retirement planning. In that case, you can consult a financial professional to help you establish good money habits from a young age. They will also guide you on your retirement investments and map out a meticulous plan to meet your long-term financial goals. Moreover, they will also suggest other investment vehicles and insurance policies that align better with your goals and finances.

At the end of the day, you must remember that investing for retirement is not only about saving your money for later; it’s also about making that money grow and work for you. So, irrespective of your age or where you are in your career, it’s a good idea to talk with a financial advisor who will guide you toward following a long-term strategy that will work for you.