Seven Tips For 20-Year-Olds Who Are Planning For Retirement
When you start your very first job, you probably don't think about retirement. However, you owe it to your future self to start planning for retirement now at the beginning of your work career. Here are seven tips that help you grow your nest egg.
Be serious about saving for retirement now.
By saving now when you're young, you take advantage of compound interest and give your nest egg the chance to grow over time. For example, invest $25,000 before your 25th birthday in an account that earns a 12 percent rate of return and you'll have $2 million by the time you turn 65.
Save as much or as little as you can.
Ideally, you want to save as much money as possible. However, even a small investment makes a difference. Invest $23 per week in an account that earns a 12 percent rate of return, and you will accumulate over $1 million when you retire.
Be thoughtful about your spending.
It's easier to spend money on a nice car or something fun rather than retirement. Thoughtful spending now secures your future, though. Prioritize your needs, avoid as much debt as possible and be thoughtful about your spending.
Take advantage of matching funds.
If your employer offers to match your 401(k) contributions, take advantage of it. That money is essentially free and helps your nest egg grow.
Diversify your investments.
The 401(k) account you open at work is a smart move. Consider supplementing it with other investments, too, like a traditional or Roth IRA. Be sure to balance risk and return as well to increase your nest egg.
Automate your savings
Automatic savings increase the likelihood that you will actually save for retirement, and you won't miss that money if you don’t see it in your paycheck. Set up automatic transfers from each paycheck to your retirement fund. Also, consider increasing your automatic withdraws every month or at least annually when you receive a raise.
Save an emergency fund.
It's tempting to borrow from your retirement account to pay off student loans, buy a house or pay daily living expenses. This action can include penalties, taxes and fines as it decreases your retirement savings. Instead, establish an emergency fund that covers at least three to six months of living expenses, and resolve to safeguard your retirement account.
With these seven tips, you make planning for retirement easy. However, you can also hire a financial planner if retirement savings are confusing, intimidating or boring. He or she will analyze your finances and prepare an investment strategy that meets your needs and gives you financial security for the future.