Your 20s are a decade in which you learn, grow and make mistakes. During this exciting time of life, there are many pressing financial needs, and retirement planning often gets put on the back burner. In fact, many millennials and Gen-Zers are focused on paying student loans. However, saving money at a young age lets you maximize the power of compound interest. Read on to learn about the benefits of saving for retirement and discover tips to become financially independent in the future.
There are many advantages to starting retirement planning in your “selfish” years. Not only does it let younger generations profit from compound interest, it may also help them establish good saving habits for the future. For example, setting financial priorities now can prepare you for when life gets more complex. This could be especially helpful if you become a homeowner or start a family. Part of saving for the future includes taking out life insurance policies, as life insurance rates change with age. Having a saving retirement plan in place can make it easier to make regular contributions.
Saving early can also impact your income taxes now and in the future. Depending on the type of IRA you create and other factors, you could potentially reduce your tax burden. To set yourself up for the best chance of success, consider seeking a financial planner or tax professional. Additionally, taking responsibility for one’s financial future at a young age could also lead to early retirement or in other terms you can save more for retirement.
Different ways to start Saving For Retirement
So, how do twenty-somethings start creating a nest egg? There are numerous ways to invest in one’s future. Consider taking advantage of any individual retirement account offered by your employer. Most organizations will match contributions up to a certain percentage of your paycheck. Those who may not be able to contribute much at the beginning could start with a small percentage of their paycheck and increase the amount each year. However, it is recommended that young investors put at least 10% of their annual income toward retirement.
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Establishing an emergency fund outside of your retirement savings account is also wise. This is essential for covering any sudden bills or unexpected situations. An emergency fund also lets other retirement accounts continue to grow without interruption. Compare savings accounts at local financial institutions to find one that works best for your needs.
While your post-work years may seem decades away, putting money aside at a young age could prevent financial stress down the road. To learn more about saving for retirement in your 20s, see the accompanying resource.