How to Plan for Retirement in Your 20’s – A Must Read

How to Plan for Retirement in Your 20’s – A Must Read
  • Opening Intro -

    Planning for retirement is the last thing in the mind of a twenty year old.

    You just started working, why would you think about retirement in your 20’s?

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Planning for retirement is the last thing in the mind of a twenty year old. You just started working, why would you think about retirement in your 20’s?

This is the paradox that most young people struggle with; to learn to save for retirement when they should be traveling, buying flashy cars and all the things they dream of.

According to a report by Forbes, nearly 50% of Americans retire with no savings. This represents a population that spends their entire lifetime working, just to retire to poverty and end up being a burden to the government and the working population.

As the dependency on the working class increases, they have to spend a huge proportion of their income, hence have little to save and end up broke at retirement and this becomes a vicious cycle.

Thus, to break this cycle, there is need to start planning for retirement early. This is how:

1. Saving

This sounds obvious, but saving is the best strategy to plan for retirement.

According to financial experts, if you start saving for retirement in your 20’s you only need to save about 6% to 8% of your income to retire comfortably. As you age, the proportion of income you need to save increases, going as high as 20% at 35 years.

If your employer has a retirement fund, ensure you add on something of your own to what the employer pays.

2. Ask for higher wage

How much are you paid? Can you convince your employer to pay you an extra $5000 in the first two years of employment? If not, you need to be more aggressive and proactive in your wage demands.

Statistics indicate that your salary between ages 25-35 years determine your lifetime wealth.

Hence, be aggressive in your job, take on more responsibilities, undertake more projects and make it hard for your employer to dismiss you when you ask for a raise. Don’t wait for a salary review to make your move; be proactive and always find ways of earning more through your skills.

3. Invest smartly and wisely

Investing is one way of fast-tracking your retirement fund.

When investing, pick investment opportunities whose management cost less in terms of time and money.

For instance, the fund fees for a mutual fund is estimated to be about 1.3% annually, and yields an annual return estimated to be 6%.

Now, compare this to an ultra-low cost fund that costs 0.5% annually with the same return. Hence, you are likely save more by investing in low-cost funds with higher returns.

4. Join a Roth 401K plan

Roth 401K plan is a government sponsored savings plan which is geared towards saving for retirement.

Basically, a Roth401K offers tax-saving on contributions made, or simply put, you don’t pay taxes on any contributions made. This way, you get to save for retirement, while saving on tax expense.

In conclusion, there is no doubt that planning for retirement is inevitable; more so in your 20’s. There is no single formula for achieving this, but these tips can help you get started.

You are not too young to start thinking about retirement, share this article and help your friends to start planning for their future.

Consumer Tips reference:

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Last update on 2018-11-18 / Affiliate links / Images from Amazon Product Advertising API

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Categories: Retirement Planning