Do you want to retire young in financial abundance and travel the world? If YES, here are 21 smart tips on how to save for retirement in your 20s or 30s with ease.
Whether you are in your thirties, or even twenties, it is very needful that you have the future at heart; it is for this reason that you have got to take very seriously your retirement plan. It is the wish of us all to have a great retirement time when we would all have been too weak to work.
In fact, the World Economic Forum estimated that individuals born in 2017 are expected to live up to 100 years. This means that you still have a long and vibrant life ahead of you, even if you do not have to work. To be able to keep yourself comfortable in those years, you need to save up more in order to have resources that would last you about 30 years after retirement. All these boils down to the fact that you need to start your retirement savings as soon as possible.
In fact, you do not need to make any elaborate plans for you to start saving for retirement. All you need to know is that once you are financially stable, you should start thinking about retirement, and the earlier you start, the better for you. This is why it recommended that people start saving for retirement even from their 20s.
But how can you start your retirement journey in your 20s? What if you didn’t start early enough and you still have zero balance when you are 40? How do you meet up and catch up? These are questions this article will provide answers to.
Why Save for Retirement in your 20s?
When in your 20s, this is more likely the time when you are done with your education; you must have gotten a degree, diploma or some sort of school certification that can launch you into the job market.
After landing your first real job, you are expectedly quite excited. You are fully financially independent and the only serious financial responsibilities you have is paying your utility bills, and seeking out the latest happening places. At this point, retirement is the furthest thing from your mind; and why shouldn’t it be, you have 40 years to get to that point.
But you have to know that things are changing, and people are living quite longer these days. This means that you have to accumulate quite a bundle if you are to see yourself through a comfortable retirement time. Again, it is a fact that time passes so quickly, and before you know it, you are half-way to retirement. This is why the issue of retirement savings should never be postponed even for a day.
If you start contributing to a retirement account now, giving it about 40 years to grow, you might even be able to retire early, depending on the type of retirement account you choose, and how much interest you earn on your investment.
Some of the reasons why you should start saving for retirement in your 20s are;
- You get tax breaks on your contributions: For certain accounts, contributions are tax-deductible, or are made with pre-tax dollars. This could save you money during tax season.
- You get to contribute less with time: Unlike those who only started a retirement fund in their 50s and have to make enormous contributions each month, you can make small contributions for a longer period of time and end up in a better financial position than those who are currently closer to the career finish line.
- You could retire rich: If you plan and save enough, you could retire with a sizable amount of money and never have to worry about finances in your retirement years.
- Your money can work for you: Rather than consistently slaving away at your job, trying to make ends meet while also trying to build a solid savings account, you can start putting in small amounts now that will continue to grow on their own.
- You’ll increase your net worth: Having a higher net worth might also increase your taxes, but in the long run, you’ll achieve greater financial success over your lifetime.
- You’re creating a safety net: Retirement accounts are not meant to be tapped into early, which is why they come with hefty penalties if you do so. However, life is long and never goes according to plan. That’s why it can be helpful to have a retirement account that can save you from total financial ruin or bankruptcy.
- You could travel: What if you could spend your retirement years traveling the world instead of worrying about living on a fixed income, clipping every coupon, and having to rely on government assistance? If you start planning for retirement now, this is a very real possibility.
- You’ll have something to leave to your family: Whether or not you have children, or plan to in the future, it would be nice to leave something to those who have loved and cared for you during your lifetime.
11 Smart Tips on How to Save for Retirement in your 20s
- Sign up for your employer’s 401(k)
If you are lucky enough in your first job, you could get an employer that offers a 401(k). You are strongly advised to participate. Most employers match your contributions with some reasonable percentage to encourage your participation. When you sign up, the money you save is automatically deposited into the plan before it’s taxed, so less of your income will be taxed now. That saves you money, too.
Contribute as much as you can and try to take full advantage of your employer’s matching contribution. For example, if your employer contributes $1 for every $1 you save, up to 6 percent of your pay, do your best to contribute 6 percent. You should do this because you generally have fewer responsibilities and can afford to part with the money. You can reduce it later in life to match your life issues.
If on the other hand you are not eligible for a retirement fund at work that gets you matching funds, sign up for a Roth IRA. You’ll fund it with money out of your paycheck that’s already been taxed, but when you withdraw the money in retirement, it will be tax-free.
This year, you can put up to $5,500 in a Roth. If you can’t save the max, save what you can; it will add up. To make sure you stick to saving, have a portion of your paycheck automatically deposited into the Roth on a regular basis.
- Build an emergency fund
Start building an emergency fund so you don’t have to rely on credit cards, or worse, your retirement savings, for unexpected expenses such as a car repair. It is recommended that you should try and save up to six months’ worth of living expenses.
Set up automatic deposits to a high-yield savings account to stay on track. Having emergency cash in an easily accessible savings or money market account could keep you from dipping into your retirement funds if you happen upon an emergency need. If you withdraw money from a retirement account too soon, you’ll be taxed heavily.
3. Have a Savings Account
The first rule of thumb that must be strictly adhered to is that you have got to make savings an integral part of your lifestyle. This is because saving is a very important plan that you must stick to. If you have already started saving, then you have got to do all it takes to be sure that you do not break the exercise.
On the other hand, if you haven’t started to do this, then you would need to start as soon as the need to save for your retired days hit you. No matter how small, be sure that you would surely save up something really reasonable when you are consistent.
4. Decide What Type of Savings
One other thing that you have got to take seriously is to decide on the type of savings you want to embark on. Whilst you may consider saving with any of the retirement plans being made available by your bank, you can also do your own research to ask folks who have walked the same path as you.
5. Save half your income
This advice I believe is almost exclusive to those in their 20s because it is only at this point that you can afford to do this because of the limited responsibilities you have. If can work towards setting aside 50 percent of your paycheck, you’re well on your way to financial freedom. Even if you cannot afford to put aside as much as 50 percent, you can start with any amount you can afford.
6. Put Your Money in an Individual Retirement Plan
One other plan that you can decide to act on is starting an individual retirement savings plan. This plan would help to a large extent in putting things in shape. However, you have got to ask about the duration at which the money being saved would be for. Also this means that you have got to dedicate a part of your salary every paycheck.
7. Annual Investment Retirement Savings
This retirement saving plans vary from one country to another. Whilst, they are carried out in different ways, but one of the commonest things about this retirement savings option is that you save a certain amount of money annually so as to fit into the retirement plan that you desire in future.
8. Employer’s Retirement Saving Plan
This is yet another very effective retirement savings option that you have got to consider. How does this work? This means that if you are an employee, you employer may begin to setup a type of individual retirement savings account called the simplified employee pension plan for themselves and you. It is very important that the employee contribute a uniform amount of money for every employee.
9. Profit Sharing Retirement saving options
This case happens when an employee of labor decides to make some contribution that is based on the amount of profit that has been realized in business. This type of savings option has worked well for some folks as the contribution is usually a flexible one that allows for consistency.
10. Have Your Money Fixed
This might not be an option that could readily come to mind, but it sure is one that works. This means that you could decide to fix some amount of money periodically with a bank of your choice. What fixing your money does is that you are able to be disciplined not to touch the money over a period of time. There are some plans that affords for short terms and long terms.
11. Buy Stocks
Over the last ten years the stock market all over the world has been such that have dwindled. However, it is still an option when it comes to retirement savings options. This means that you could buy some stocks and then hope that in years to come you would be able to have your money back with good dividends.
These are the 11 basic retirement savings options that you should consider. In addition to all these, you would also be garnering a lot if you took time out to do some exhaustive research on the retirement plans that are available.
7 Smart Tips on How to Save for Retirement in Your 30s
When you hit your 30s, you are expected to have gotten a little bit more experienced, and you may have also had some other added responsibilities. Marriage, a mortgage and little mouths to feed may now be in the picture. Even the family dog eats a portion of your paycheck. You may also have had a better paying job and your finances have taken a boost.
Now that you have a few years of investing under your belt, it’s time to start optimizing your retirement savings. You need to start setting things aright so you do not make a mess of the finances that you started arranging in your early days.
Here is what you need to do to optimize your retirement savings in your 30s.
- Pay off your debts
As you go along in life, there is no denying the fact that you may have picked up a few debts. Your next smartest move is paying off your debt. All the interest and fees you’re paying are eating away at the amount you’re able to put toward retirement. And now that you’ve probably settled in a career and are getting raises, it’s time to double down and eliminate that debt.
Ideally, your 30s should be a time when you are paying your credit card completely each month and just using credit cards to earn cash and rewards for flights, shopping discounts and other perks. Try to keep each card balance below 30 percent of the available credit limit, especially if you plan to apply for a loan. A balance above that threshold may hurt your credit score.
- Open a retirement account
Assuming you did not get around to opening a retirement account in your 20s, now is the time to do it. Open a traditional or Roth IRA and start maxing it out. As of 2018, the annual maximum you can contribute if you’re under age 50 is $5,500. The type of IRA you contribute to is up to you.
A traditional IRA lowers your taxable income, so if you’re within $5,500 of the next-lowest tax bracket, you can use a traditional IRA to slide in there. If you’re content with your tax bracket, you might like a Roth IRA, which won’t lower your tax bracket but grows tax-free.
- Open more than one retirement account
In case you already have a your employer’s 401(k) plan and you are making good use of it, then that is good. But you do not have to stop there. It’s smart to consider alternate retirement savings accounts too, such as a Roth IRA, traditional IRA and/or health savings account.
Keep in mind that to be financially ready to retire by 67, you should aim to have three times your salary saved by age 40. Review your retirement accounts and make sure you’re on track to hit that number.
- Contribute to a health savings account or HSA
If you’re on a high-deductible health plan, you can contribute to an HSA. Contributions are deducted from your paycheck before taxes are taken out, and account balances above $2,000 can be invested just like they would be in a retirement account.
Your HSA can be used for any qualified medical expense at any time, and once you turn 65, funds can be withdrawn for any expense without penalty.
- Get disability insurance
Your 30s are also a time to think about life insurance, which would cover the people — be it a spouse, a child or a parent —who rely on you for financial support. Find out whether your job offers short-term disability coverage, which would cover you if you became unable to work for several months because of an accident or medical condition. It is the standard for policies to replace about 60 percent of your pay, so if that isn’t enough to cover your bills, you should think about increasing your savings or buying a supplemental disability policy.
- Start an investment
Once you know your emergency fund is growing nicely, you should start building wealth outside of your house and your retirement account. In your 30s, you need to invest aggressively, allocating 80 to 90 percent of assets to a diverse array of stocks.
Young people who mix up their investments by starting a stock portfolio or launching a small business, instead of focusing primarily on buying a house, can set themselves up for greater financial stability in the long run. Even if you aren’t sure what you want to do with that money, creating a portfolio can still give your savings more room to grow until you know what you want to do with the funds.
Some experts suggest keeping some of your money in less risky investments like index funds or bonds, while investing other money in stocks or other options that offer a bit more risk. The thinking behind this is that you might suffer some short-term losses, but in the long run there is a better chance that these investments will give you the healthy returns you want to fund your retirement lifestyle.
- Start saving for college
If you are determined to send your child to Harvard, start saving early. Like any other big-ticket expense, it’s easier to save a little bit over the long haul than try to play catch-up when your kids are in high school.
It’s never too early to think about college. A state-sponsored 529 plan is a great way for parents to save for education. You should also be on the lookout for work-study programs, grants, loans or scholarships that will help fund your children’s college education.