20-Year-Olds Who Save
While the rebellious millennial in me wants to disregard the life advice my professors squeeze in between finance curriculum, the practical part says to listen to them when they scream at the class to “start saving for retirement…NOW!” When someone mentions life post-college, an image comes to mind: me, tragically drowning in student loans and new adult costs such as rent and transportation and my beloved weekly Thai takeout. Saving for retirement seems more impractical than practical. Saving in general seems more impossible than when I miraculously passed accounting freshman year. Below are some much needed retirement tips that I recommend all twenty-somethings in my position follow.
Choosing the Right Saving Option
If you are in your mid-twenties and skipped the backpacking-through-Europe quarter-life crisis route (unlike your college roommates), check in with your employer to begin the conversation about your retirement account eligibility. If you don’t have an employer, don’t worry! There is still an option for you.
Regardless of whether you want to climb the corporate ladder in your current company or leave as soon as a better option is presented, a 401k is the best place to start. Your employer will often match your contribution, which means that half of the money you save will be just from Choose a contribution rate that works for you, and try your best to stick with it. Be smart and set a percentage of your income that you want to save. Some of the best companies to retire from, including COP, AMGN, and BA, share the quality of requiring an initial investment of 1% of income, followed by a contribution of up to 5% of total employee salary.
There are certain income limitations on opening a Roth IRA, but young people typically won’t need to worry about these restrictions, as they are directed towards higher earning citizens. Roth IRA’s are a beautiful thing in that they grow tax-free for the duration of the account. However, be aware that the maximum investment in a Roth IRA is around $5,500, so try your best to build your account to that point for maximum benefit.
Benefits of Opening a Retirement Account in Your 20s:
Anyone mature enough to have started a retirement account is probably aware of the benefits of starting an account as early as possible, but here they are laid out.
Learn How to be Responsible with Your Money
Saving for retirement in your early years will teach you the necessary discipline of managing your own money. Instead of relying on your parents well into your twenties and conforming to the stereotype against all millennials, show society, and yourself, how responsible you can truly be. While this is a mostly psychological benefit, it is also one of the most important.
Social Security is Depleting
Depending on how statistics surrounding this topic are interpreted, it could be argued that social security is depleting. Short term, there is no trouble, as the reserve is $2.9 trillion, but in the future, there could be some issues. Cash flows for Social Security have been negative since 2010, indicating that more money is paid out more than contributed. To avoid relying on a money source that could be gone by the time you retire, start saving now and build a safety net.
The best part about beginning your lifetime of saving early is the recreational benefits. Saving early usually results in a financially stable lifestyle, where fun recreational activities are budgeted for. If you want to travel, you will know how to save for a big trip. If you know that you want to leave behind a legacy for family, then this will kick-start you. Regardless of your intentions in your lifetime, starting a retirement account early on ca only help you in the long run, even if it feels like a burden in the short run.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.