Jason, take it away….
How to retire isn’t usually a question you hear from most 20 year olds.
But it’s a great question! Here (unfortunately) is the most popular question:
Why should I start planning for retirement in my 20s?
OK, full disclosure time:
I’m in my mid-20s and while I’ve always had a savings account, I only very recently started saving exclusively for retirement. This despite the fact that I’ve been eligible for my company’s matching 401k plan for close to a year. And yes, I run a personal finance website. Practice what you preach, people.
Now that that’s out of the way, here’s an answer to the question of why you should start planning for retirement in your 20’s: if you put off saving for retirement long enough, you may run out of time come your 30’s and 40’s.
Not only that, this might be the time in your life when you can afford to put away money the most. Look, I’m not rich and neither are my friends, but we know that our living expenses are as inexpensive now as they may ever be again. Consumers in their early 20’s are often single, many don’t have kids or a mortgage, and a lot of us are making the first decent money of our lives.
Also, people in their 20s know how to live cheap. We’ve got roommates. We’ve got ramen. And (again) we’ve got a lack of mouths to feed. If there’s ever a time where you can put a decent chunk of your check towards retirement savings without sacrificing the well-being of anyone around you, this is the time.
Here’s why you want to start saving for retirement now: the earlier you begin, the better the chances that you’re going to be taken care of when you’re older. This is obvious, but it’s important to remember that social security is by all accounts going to be a pretty dry well for current 20-somethings (if it even remains to exist at all). If you’re in your 20s, odds are you’ve finally started looking to the future – don’t overlook retirement. Yeah, it’s far off, but it’s still there.
5 Easy Steps:
Whether you’re 20-somthings or not, these 5 easy steps will show you how to retire by planning now.
1.) Max out your company’s 401k matching
If your company offers 401k matching or something similar, it’s important that you max out the percentage of your salary your company is willing to match. Whether it’s four, five or six percent, your company is offering you free money for retirement. Take them up on it. In fact, take them up on as much of that free money as you can.
I shudder to think how much free money I missed out on by putting off my 401k. Don’t make the same mistake as me. Walk into your HR department right now if you need to. Seriously – I’ll wait.
2.) Make paying down debt a priority
If you’ve never heard of the snowball effect of debt, it’s essentially the way in which debt can “snowball” because of high interest rates. Basically it just amasses into one giant ball of debt that’s seemingly impossible to pay off thanks to interest. Whether it’s your car, your student loans or your credit card bill, the longer a debt sticks around the harder it is to pay back.
Speaking of debt…
3.) Avoid bad debts
I read a piece in TIME recently that explained that 20-somethings owe less than the generation before them, but unfortunately the debts we do owe are considered “bad debts” rather than asset-building debts. Credit cards, auto loans – these are considered bad debts since they don’t appreciate in value.
Keep your credit debt at zero, use the bus or train to get to work if possible, and avoid as many bad debts as you can in your 20s. Again, you’ll save on interest while keeping the amount of outstanding debt in your name minimal.
4.) Get frugal
This is one of the best strategies for how to retire. Like I mentioned earlier, the time to live cheap is your 20s since there are fewer expenses to keep up with, and often less bodies depending on you as the bread-winner.
You could create a budget and stick to it pretty strictly, or you could make some general cutbacks and see where it gets you on a month-to-month basis. No matter how organized or unorganized you wish to go about it, making more out of less by getting frugal is one more way to save for retirement in your 20s.
5.) Set some goals
Where would you be today without goals? I know the goals I’ve set have pushed me throughout life, from making the basketball team to getting into college and ultimately moving across the country. Without goals, I’m not sure how I would motivate myself to strive for more.
The same is true with saving for retirement. It’s pretty hard to calculate how much you’ll need for a retirement that begins 40 years from now, but setting up some monthly goals – like putting away $100 a month to your 401k – can organize your savings and make your savings standards simple.
You’ll feel better knowing that you’re putting even a small chunk of your money toward the future. I know I have, even it has cost me a pair of shoes here or a night out there. Something tells me I’ll be thankful for it in the not-too-distant (but let’s face it, pretty far off) future.
(Heeeeeeey ya’ll! It’s the Budgetnista. Thoughts sis-stars? Learn anything new about how to retire? Was there anything you knew already, but are now ready to do something about? I want to hear from you in the comments. Also, be sure to share this article with an awesome, twenty-something you know.)
JOIN us and LIVE RICHER,