If you’re in your twenties or have children in their twenties, then you know saving for retirement doesn’t always top a millennial’s “to-do” list. However, tucking away money early, even just a little, will give those funds a better opportunity to grow in the stock market overtime. Here are five things twenty-somethings need to know.
College graduates, listen up. While you have an entire life ahead of you, saving early can make retirement planning easier. Don’t push the 401(k) paperwork aside. This is the time to get used to having retirement contributions deducted. It’s removed from your paycheck before you receive the income, so it’s money you won’t even miss. It will be tucked away for growth and future comfort.
Most grads don’t start out with hefty paychecks and you definitely need money to live, especially when you’re on your own. But even the lowest contribution will reap big rewards one day. Remember, steady as you grow! If you put off saving until you’re older, you’ll have to sometimes double the percentage of pay you would have contributed in your twenties, to have enough money in retirement.
Understand the Basics
You never stop learning in life and it could be in your best interest to get schooled on retirement planning. A financial advisor can sit down with you an explain terminologies and how different funds work. They can create a financial roadmap, making planning a lot easier. Plus, there are tons of personal finance books you can read to serve as a guide to begin your savings journey.
If a 401 (k) plan is not available with your company, we suggest opening an individual retirement account, or IRA. There are two kinds; a traditional IRA or Roth. A traditional IRA can give you a tax deduction and lower your tax bill, but you’ll owe later when money is withdrawn for retirement. With a Roth IRA, you don’t receive a tax break now, but it will provide tax free income when you’re ready to retire.
Financial advisors suggest you increase your contribution rate overtime. Some plans let you sign up for an automatic increase. If your retirement account does not give you this option, choose a date every year to serve as a reminder to bump up your percentage. While we all anticipate bonuses, tax refunds etc., consider putting some, if not all, the extra income towards your nest egg. Many people dream of retiring early and by planning early, it can definitely help you achieve that goal.