How To Plan For Retirement In Your 20s

For most people in their 20s it’s hard to even think about retirement. You’re just out of college, probably struggling for money, and more concerned with moving out and trying to enjoy your life than retirement. That’s all normal, but you should still think about retirement, no matter how far away or stressful the idea seems.

I’m a long-term planner, so it’s not hard for me to think about retirement, but it is stressful. In the midst of trying to get Italian citizenship, find work-from-home jobs, and figure out how to afford to travel, I’m also trying to figure out how to plan for retirement. I’ve spent hours reading articles online about how to plan for retirement in your 20s as well as going over what my company’s 401k suggests. After going through all of that, here’s what I’ve found out about how to plan for retirement in your 20s.

1. Start now. Everyone says that, and they’re right. It doesn’t matter if you’re in college, out of college, working, or searching desperately for a job, you should start planning for retirement right now. Any accounts you open now will have more time to gather interest, which will make them more valuable than if you started them five years from now.
2. Use your company’s 401k—if you’re working and have a 401k option. I do, and my company matches fifty cents on the dollar. That’s free money, and whatever you contribute, up to a certain amount, is tax deductable.
3. Start a Roth IRA. IRAs are individual retirement accounts. Regular IRA contributions can be tax deductable, just like 401k contributions. With Roth IRAs, on the other hand, you’ll be taxed on what you put in. The great part about that is that you won’t be taxed when you take money out of a Roth IRA. It’s just your money. With regular IRAs and 401k plans your withdrawals during retirement will be taxed like regular income.
4. Contribute 15% of your income. That’s the experts’ consensus in just about every article on how to plan for retirement in your 20s, anyway. Contribute 15% of your income and have a full year’s salary put away in your accounts by the time you’re 30. In my opinion, they’re crazy. How much money do they think we 20-somethings make in this awful economy? I’m contributing 8% of my paycheck to my 401k every month, and that’s where it’s going to stay. I can’t afford more than that. Or I could, but I’d be stuck at this dead-end job for the rest of my life and not be able to travel or live my life. And that’s what your 20s are for, being selfish and living your life. So contribute as much as you possibly can while still being able to reasonably enjoy yourself.
5. Contribute regularly to your 401k and/or Roth IRA. If you have to change the amount you contribute based on your income and bills, that’s okay. Just contribute as much as you can as often as you can. Over thirty years it will build up. Trust me. Or trust the authors of all those how to plan for retirement in your 20s articles that I read. I’m in my early 20s, and have only been saving for six months, so my account is a little too small for you to trust me.
6. Don’t touch the money in your retirement accounts. Pretend it doesn’t exist. The money you put into those accounts goes into a black hole. You will never see it again. You’ll be penalized for taking money out of your retirement accounts before you reach a certain age (usually 65), so just keep thinking about that money not existing. Unless you literally can’t buy food or borrow money from your parents, never touch the money in those funds until you’re 65.

Those are the basic guidelines for how to plan for retirement in your 20s. If you’re able to, contribute the max amount of money, usually $5000, allowed to your Roth IRA and 401k accounts every year. I can’t do that, so I’m currently only contributing about $2,000 a year, and that number will probably go down drastically if/when I start traveling. What you contribute may vary too, and that’s okay. Live your life and do what you can, just be smart about it.

And as I said, start as early as possible. For most people that’s usually around age 25. For me it was 23, but I might take some time off from contributing to my accounts while traveling. So, you know, I can buy food and afford a room in a hostel. Start as early as you can, whether that’s 20 or 29, based on what you can afford in your own life.

In summary, how to plan for retirement in your 20s involves saving money as soon and often as you can. Just don’t sacrifice completely enjoying your life to do so. Live your life now, plan for the rest of it according.