When I started saving for retirement, I was not exactly young adult. I was about to enter into my 30’s. Partly because I immigrated to this country late and initially thought of returning back home. Things didn’t turn as per that plan. Now I am resident and will stay here for a long long time. I am now playing a catch-up game, a catch up to have my retirement saving on track and overcome the late start. In this post, I’ll give one of the most important financial advice for young adults, about planning for retirement.
Especially if you’re in your early to mid 20’s this post is really for you to help get your retirement saving started and get going. You’d like to retire rich, right? Of course you would, and while retirement seems like a long way off for those of you in your twenties, if you haven’t given it at least a little thought you could be missing out on a massive wealth creation opportunity.
That’s because the longer you have to save, the less you need to invest. Time and the magic of compound interest will do the work for you. That’s the beauty of retirement planning for young adults, you could never go wrong. In a depressed stock market, you have no risk pf losing money, as long as you stay put, the market will recover and you can nullify temporary loss. You have so many years to earn and save.
You may think retirement is far away, why save money now? Does waiting around really make such a big difference?
Put it this way; waiting for say, ten years, to start saving the kind of money you can afford to put away right now, means you will retire with less than half of what you could have.
A Successful retirement planning is about starting early, 20’s is the perfect age to start saving for your retirement. Other than self-help and having a portion of your paycheck go to your retirement fund, consulting a financial advisor can help you move forward with your plans, and remember – you’ve got time on your side.
Let me put down a few basic steps to help you plan for your retirement while you’re still young.
Retirement planning steps for young adults
Start Saving – Right Now
This can be a challenge if you’re still not earning all that much, but go through your expenses carefully and see what you can afford to curtail. There’s usually a little you can corral each week, and you’re only looking for a couple of hundred dollars a month.
With no family or other large financial commitments to hold you back now is the time to make your money count. (SEE ALSO – 5 steps to meet savings goal)
Check if your employer has a 401k plan, set yourself up to the plan. Start contributing and have a percentage of your salary go into the fund directly, before it reaches you. And, if your employer matches a part of your contribution, it’s a free money for your retirement.
Don’t be afraid of developing your own financial intelligence. Unless it’s something you’ve studied at school or university, financial jargon and the range of investments can seem utterly overwhelming, so it’s a good idea to start educating yourself.
Begin with the simple stuff; reading the financial news, or even just watching the report on TV or online. Look up anything you don’t understand and ask a financial advisor to explain anything to you that seems confusing – this way, you’re investing in your own financial knowledge as well.
After all the more you know, the better informed your money decisions will be.
Make Debt Your Enemy
If you’re already carrying large amounts of personal debt (such as a permanent credit card balance that never seems to shrink), make it a priority to work your way out. Cut expenses to the bone, sell what you don’t need, and pour all available funds into the debt until it is gone.
Then put together a budget that includes a savings plan, and ensures you’ll never need to carry personal debt again. Try putting away a similar amount to what you were putting into paying off your debt – your results will amaze you. If you’re not yet in debt, avoid debt at all cost.
Don’t buy things which you don’t need, else you’d soon start selling things you need – Warren buffet
Set up a special fund to cover any financial emergencies. Funnel a set amount from your income into this fund until you’ve got about two or three months’ worth of expenses saved.
This way, you can avoid relying on credit cards to get you out of trouble if your car suddenly breaks down or some disaster strikes. Being prepared for unexpected expenses makes sound financial sense.
Rule of thumb set this fund to the size of your 6 month’s net paycheck. Confused? Here’s some help for you.
Talk To A Financial Partner
It’s never too early to consult a financial advisor about your future. A financial expert will help you plot a path to your wealth creation goals. You’ve got increasing earnings and plenty of time on your side so you really can make the most of what you’ve got coming in. The earlier you start planning, the more comfortable and worry-free your retirement will be.
Your twenties are the best money-making years of your life. You can do more with your money because you’re not yet saddled with a mortgage and children.
With so much freedom in your life, it’s not really about how much you earn (you will undoubtedly earn more as the years tick by) but it is about how well you invest what you do earn, and watching it grow.
When you retire on double what you would have had if you’ waited around, you’ll thank yourself – and you’ll be able to do it in style.
Have you got a plan for your retirement already? Share it with others in the comments box below.
Alissa @ FinanceWand says
Excellent blog post. It covers up the entire plan to move forward and plan for a quality life during old age. I liked most the contingency plan point. Most people miss this point.
Just the other day we had to pay huge medical bill, the specialty medication that my wife needed wasn’t covered by insurance. I had to put $5,500 out of pocket. without contingency fund, I’d have been in debt for this payment alone.
Jon @ Money Smart Guides says
It’s such a shame that so many don’t realize the power time has on our investments. If you just make it a point to save a little bit with your first job, you are putting yourself ahead of the game. Plus, when you get married/start a family, you will be more comfortable living on less (since you are saving for retirement) and can continue saving.
Exactly, starting at 25 vs. starting at 35 will make 50% difference in net amount at the time of retirement, when keeping the same rate of contribution. The math says it all!
Nik @ Midlife Finance says
Great advice not just for young adults, but also for people in their mid 20’s or 30’s. Now is the best time to start saving and I think everyone should realize how important it is.
Just like you, I started saving in my late 20’s and now struggling to be on track, but I will be on track in 2 years time.
Yes even though my company matches only up to 5% of my gross pay, I am contributing 10% to my 401K, just to catch up.