The Best Ways To Start Planning For Retirement In Your 20’s
Young adults often face numerous financial challenges. These may include paying off large student loans, living on a small paycheck and dealing with other circumstances. You may have heard that it is best to start planning for retirement as soon as possible, but preparing for a life event that is several decades away may seem relatively unimportant when you are faced with more pertinent financial challenges. However, when you make even a few small steps now to plan for retirement, you can avoid considerable financial stress later in life. You may even be able to leave the workforce behind several years sooner than you otherwise would. These are few of the steps that you should take now to begin planning for retirement.
Set Up Automatic Retirement Account Contributions
Most employers offer a retirement account to employees as a benefit, and many provide an employer-matching benefit as well. As soon as you land your first full-time job, set up your retirement account through your employer. A good rule of thumb is to allocate 3 percent of your gross income toward your retirement account or as much as you need to in order to take full advantage of your employer’s matching contribution benefit. If you are living on a tight budget, consider starting with a smaller contribution today. Increase the percentage that you contribute as you get raises and promotions. Automate contributions so that your retirement account balance grows without you needing to make a conscious, regular effort to save and invest for the future.
Avoid Debt
Many adults unfortunately enter their 30s with a considerable amount of debt and little or no money saved for retirement. In this situation, serious planning and saving for retirement is often delayed for years while they pay down high debt balances. It may be challenging to avoid all debts in your 20s, but you can dramatically reduce the debts that you take on. Some debts, such as a home mortgage and student loans, are more reasonable than credit card debts and high car loan payments. Even when you take on a mortgage and student loans, however, make a focused effort to pay more than the minimum monthly payment so that the money can be repaid as soon as possible.
Live Below Your Means
After landing your first professional position in your field, you may be eager to set up a comfortable life based on the lifestyle that you can now afford. However, when you live up to your means, you leave little or no money to save. You also may not have extra money available to cover unexpected expenses. Some people even live beyond their means and accrue growing piles of debt as a result. Now is the time to get accustomed to living below your means. Choose a more affordable home and car than you can afford, and avoid upgrading when you get raises. Instead, save your raises.
Save Windfalls
Over the years, you will receive many smaller and larger windfalls. For example, you may get extra money from work bonuses, tax refunds, holidays, birthdays, inheritances and more. It may seem nice to blow this extra money on fun things today, but think ahead. Once this money has been wasted on frivolous things, it is gone. A better idea is to save this money. By doing so, you allow it to grow through investments. It provides you with financial security that only money can buy, and this security can change your life profoundly in the years ahead.
By planning and saving for retirement as soon as possible, you take advantage of the power of time to grow your money over the years. Small, regular contributions now can help you to avoid having to make huge retirement contributions in your 40s and 50s. It also will help to ensure that you can retire comfortably on your own terms rather than potentially be forced to work longer than you want to. These are relatively easy steps to take to begin setting yourself up for a better tomorrow, but they require discipline. There is no better time than today to establish great financial habits and to prepare for your non-working years.
