Retirement Savings for 20 and 30 Somethings
Don’t wait. The sooner you start saving, the more money you’ll have when you retire.
To Generation Y, retirement is a long way off. There are other, more pressing priorities like paying off college loans, buying a house and starting a family.
Truth is, your 20s and 30s are the best time to start your retirement saving. By starting early, you have more years to set money aside, plus, you can take advantage of compound interest to make your retirement nest egg grow faster and larger.
The longer you wait, the smaller your savings, not only because there are fewer years to save, but because there are fewer years for the savings to grow.
Here are some tips to get started with retirement saving.
Make saving a priority: While it’s tempting to let other expenses get in the way, if you start saving for retirement in your 20s, you’ve got a strong chance of retiring with a seven-figure nest egg. Here are several online retirement savings calculators to help you determine how much to save each year to reach your financial goals.
Establish retirement plans before funding your children’s college education: Have your retirement saving plans solidly in place before starting a child’s college account. Think of it this way – there are many ways to pay for college including scholarships, loans, grants, etc. However, nobody will loan you money for retirement.
Maximize 'free money:' If your job offers matching funds for a 401(k), 403(b) or other retirement plan, contribute as much as you need to in order to get matching funds. Additionally, all qualified retirement plans, including Individual Retirement Accounts (IRA) as well as a 401(k) and 403(b) plans, may have tax benefits. No company retirement fund? Start your own IRA. (Note: There are two IRA options – a traditional IRA and a Roth IRA. The tax treatment of your contributions and withdrawals will depend on which option you select.)
Don’t tap retirement savings until you retire: If your retirement account has a large balance, it may be tempting to use it to buy a house or other expensive item. Don’t do it. Any money you withdraw is money that won’t be earning interest. Plus, there may be significant tax consequences if you withdraw money early.
Diversify: You want to own as many different types of investments as possible. Steer clear of buying a single investment and look to funds that spread the risk.
Learn about finance and saving: Don't be embarrassed to admit that financial terminology can seem confusing. Unless someone has previously taught you about finance, you'll need to do a little learning.
With careful planning and dedicated saving, you can build a substantial nest egg to fund a rich and fulfilling retirement.
For personal investment and tax advice for savings, rollovers (in the event of a job change) or new accounts, contact an accountant, tax advisor or personal investment consultant.