Retirement planning while you’re at your first or second job? You’re probably not making a lot of money yet, but compared to just a few years ago when you were primarily a student, you’re taking home a decent income. Still, you have plenty of bills to pay and you’re only earning an entry-level salary. You might wonder if retirement planning matters at all when you're only in your twenties.
Every dollar saved while you are young is potentially several dollars you won’t need to save later. Here are the top three most important steps to successfully begin retirement planning when you’re in your twenties.
Retirement Planning in Your Twenties Step 1: Pay Down Your Debt
One thing preventing many young people from saving for retirement is their debt level. However, once you begin to pay down your debt, you also begin to rid yourself of the related expensive interest charges. Once you make significant progress on your debt, it becomes easier to save. One key consideration of debt management is to pay down your most expensive debt first: the one with the highest interest rate. Tackle high-interest debt early in your working career and you’ll find step two much easier to accomplish.
Retirement Planning in Your Twenties Step 2: Save, Save, Save
With your expensive debt under control, you can more easily and more confidently save part of your paycheck for your financial future. One of the easiest ways to accomplish such long-term saving is through your employer’s 401K plan. (Section 457 and 403B plans work similarly.) If you do not have a workplace retirement plan, consider an IRA or a Roth IRA. Saving for retirement while you are still young can make it dramatically easier for you to reach your retirement objectives compared to waiting a couple of decades to begin.
Retirement Planning in Your Twenties Step 3: Get the Match
A 401K matching program, should your employer offer one, is one of the truly greatest retirement planning opportunities of any age. Yet the benefits of the plan are magnified if you take advantage while you are in your twenties. When your employer matches your 401K contribution, he adds extra funds to your retirement account at no cost to you. It’s as though you receive free money. Make sure you take maximum advantage of your employer’s matching program – it will never be easier to save a substantial sum for retirement than via a 401(k) matching program.
