So, you’ve just graduated from college, scored an awesome job and are moving to an apartment in a new city. You’re just beginning your professional life, so why would you start saving for retirement? Believe it or not, your 20s are the perfect age to begin setting aside money for retirement, but knowing how to start saving money can be tricky. Fortunately, we’ve figured that out for you.
Do I Really Need to Start Saving for Retirement Now?
Yes! The sooner you start saving for retirement, the more interest you’ll accrue over your lifetime. Translation? Free money! Beginning to save for retirement in your 20s gives you a huge advantage over those who take the plunge only a decade later. According to Bankrate, if you put away just $2,000 a year beginning at age 25, you’ll have saved more than $500,000 by retirement age. If you start ten years later, you’ll save less than $250,000. That’s a huge difference! Do yourself a favor and start early.
How Much Will I Need to Save?
If you begin saving for retirement in your 20s, you’ll be able to set aside relatively little for a shorter period of time than someone who begins later and saves over an entire lifetime. When deciding how much to set aside each month, think about what you can afford. Most people try to save up to 6 percent of their salaries. Ideally, you should have about eight times your salary set aside by the time you’re ready to retire.
Will My Employer Help?
Although polices vary between companies, some employers will have a pension plan available or may match a portion of your contributions to your 401k. A 401k is a retirement plan that you sign up for through your employer. The money you designate to be set aside for retirement is automatically deducted from your paycheck each month before it’s taxed, so you won’t even miss it! It also means that you will have less taxable income to report each year. It’s a win for both current and future you.
What If I Don’t Want to Start a 401k?
If your employer doesn’t match your contributions to your 401k, you may want to consider opening a Roth IRA instead. Contributions to your Roth IRA are made after taxes. However, that means that any money you withdraw from your Roth IRA upon retirement is tax-free. Like a 401k, you will earn compound interest on a Roth IRA, so it’s best to start saving early.
What If I Can’t Afford to Save?
Even if you can only contribute $50 per month to your retirement fund, it’s better than nothing. Starting to save in your 20s means you can set aside less and come away with more once you reach retirement age. Set goals for yourself, and maybe make the decision to sacrifice your daily latte in favor of saving for retirement. You’ll be glad you did.