ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

How To Plan For Retirement In Your 20s

Updated on September 28, 2014
Source

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.

Comments

    0 of 8192 characters used
    Post Comment

    • profile image

      ATRIFA 

      3 years ago from Southern England

      I like this article and will only comment that you need to take into account compounding of returns and the affect of risk free growth against taking a long term view on higher risk funds. Remember the mathematics of money doubling. If it grows at 7% p.a. it will take 10 years to double or at 10% it will take 7 years to double. In your early 20's you should be piling high into higher risk investments and taking a view each year about what you have achieved.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)