When you’re in your 20s, it can feel overwhelming trying to figure everything out on your own. You may have a pile of student debt, you’re just out of college or finishing your education, and you can feel like you’re one missed paycheck away from living with your parents again. After sorting out your budget, maybe you’re able to set aside a measly $50 for savings—so is it even worth it to start planning for retirement?
Yes, it is worth it—without the slightest doubt. It’s wise to plan for your retirement no matter how old you are. In fact, the earlier you start setting money aside, the better off you will be in the long run. Here’s what you need to know about retirement planning in your 20s and why you should start today.
Time Is Money
When it comes to investments, time is your best friend. More time means giving yourself the opportunity to maximize your savings. Saving as little as one percent of your paycheck a month might even be better for your retirement savings than making large, sweeping contributions when you are over 50. Thanks to compound interest, a small, consistent investment over time is generally better than a single, large investment later on.
Chances are you’ve thought about compound interest in regards to debt. You know that a $100 credit card purchase can more than double in total cost if you don’t pay it off promptly. Investing for your retirement uses that same math to help you save. Every cent you earn in interest gets added back into the account and helps you save even more. The longer you give your money the chance to snowball and help your interest make more interest, the better prepared you will be for retirement.
Saving for retirement is a habit. You have to practice for it to become second nature. If you don’t establish the habit now to put aside money and plan for your retirement, it won’t be any easier for you ten years from now. By starting young, you’re giving yourself more time and practice developing the saving habit to prepare for a more financially secure future.
Missing Out on Free Money
What sort of retirement benefits are offered through your work’s benefits package? Your employer might have a 401(k) match program. If you don’t participate, you are missing out on a major opportunity to double your investment capital. One of the easiest ways to bolster your retirement savings is by participating in your company’s 401(k) program. In this program, you choose a certain portion of your paycheck to contribute to your 401(k) which is automatically deducted each period. Your employer may also make an additional contribution – a percentage of your employee contribution up to a certain amount. If your employer offers these matching contributions and you’re not taking advantage of the full amount, you’re leaving free money for retirement on the table.
If you start preparing today, you will be one major step closer to being prepared for retirement. As Ken Fisher of Fisher Investments mentions in his book, Plan Your Prosperity: The Only Retirement Guide You’ll Ever Need, Starting Now—Whether You’re 22, 52, or 82, “however old you are or however far along in your career, the time to think about a retirement investing plan is now.” No matter when you start planning for retirement, you always want to make smart decisions to get the most out of the time available.
One of the best choices you can make once you start saving for retirement is to avoid using that money unless you absolutely have to. When there’s an emergency, it can be tempting to use your retirement savings, but that can be harmful to your long-term financial strategy. Once you set aside money for retirement, it’s better to imagine it doesn’t even exist until you retire.
Start planning for your retirement today. The earlier you begin, the better off you will be.