Save Now, Reward Yourself Later

It’s easy to understand why saving for retirement isn’t a priority of yours when you’re in your 20s. You’re probably more concerned with paying off your student loans and beginning your new career. However, being young gives you a huge advantage if you want to start building wealth for retirement. The earlier you invest money into a retirement account, the longer you will earn compound interest. Therefore, if you start saving a little now, you can earn greater rewards down the road. Listed below are five tips for maximizing your retirement savings in your 20s.

Tip 1: Begin Saving ASAP

There are probably many reasons why you have yet to begin saving. However, do not let the fact that you have to pay off expenses become an excuse for not saving. The longer you put off saving, the more it will push you back and hurt you during retirement. You should also create a budget and determine how you can reduce your spending. Check out these tips for saving more money.

Tip 2: Sign up for a 401(k)

If you’re eligible to sign up for a 401(k), then you should definitely do so. Most employers offer a matching contribution which means they match a percentage of your original investment that you put into your plan. This is a major advantage to help you save for retirement. When you sign up, the money you save will be automatically deposited into the plan before it’s taxed, so less of your income will be taxed now. That saves you money, too. It is also recommended that you contribute as much to your 401(k) as you can so that you receive the greatest match possible. This 401(k) calculator shows you how much you’ll have saved at retirement at various contribution rates.

Tip 3: Open a Roth IRA

If you are not eligible to open up a 401(k), then signing up for a Roth IRA is probably the next best option. You can fund your Roth IRA with the money that’s already been taxed on your paychecks, and when you withdraw this money during retirement, it’s completely tax-free! Similarly, to a 401(k), it is also suggested that you should invest as much as you can into your Roth IRA. To ensure that you stick to saving, you should have a percentage of each paycheck directly deposited into your Roth IRA account.

Tip 4: Take Risks with your Investments

When you’re in your 20s, you can afford to be aggressive and take risks. You have a long investment horizon, so you can handle the ups and downs of the market. It is recommended that a majority of your portfolio be invested in stocks because they most often generate the highest returns. Check out this asset allocation calculator to create a balanced portfolio of investments that fits your time horizon and risk tolerance.

Tip 5: Create an Emergency Fund

Begin to build an emergency fund so that just in case an unexpected expense occurs, you don’t have to rely on credit cards, or even worse, your retirement savings. Financial advisors suggest that you should save up at least 3 months’ worth of expenses in this account, and just like a Roth IRA, you should you should have a percentage of each paycheck directly deposited into your emergency fund account.

Overall, it is essential to begin saving for retirement as soon as you possibly can. Just because you are only in your late 20s and have other responsibilities to take care of does not mean that you shouldn’t make saving for retirement a priority. There are many advantages as shown above to begin saving for retirement at an early age. If you follow these five tips, you will most likely be happier and live more financially stable life during your golden years!

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