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How to Start Saving for Retirement in Your 20s

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Starting to save for retirement in your 20s has become essential to ensuring financial security when it comes time to retire. The rise in cost of living, medical care and longer lives mean retirement is more expensive than ever. By beginning to save with your first job and remaining consistent in your savings throughout your career, you can have the retirement you want.

The actual amount you will need depends on your anticipated expenses, your tax situation* and the earnings rate on your savings. It can get pretty complicated, but the bottom line is that you will probably need and want a large retirement nest-egg. The best ways to have those funds are to take advantage of employer provided retirement plans and other options when you begin working.

There are three ways to start saving for retirement, participating in your employer’s 401(k) plan, contributing to an IRA and opening a savings account.


If your employer offers a 401(k) plan or some other form of retirement plan, be sure to participate. The funds you accumulate in that plan can be a large source, if not the major source, of your retirement income. In addition, these plans have benefits to make the process easier and more effective. They are convenient, the employer will probably add to your contributions, the earnings are tax deferred and many plans provide investment flexibility. Here are some ideas to help you maximize the benefits of your plan:

  1. Start participating early. As simple as this sounds, some studies have found that many choose not to participate. Even minimal participation makes sense.
  2. Contribute as much as you can. Your plan may have limits regarding your contribution. For 401(k) plans, the annual limit for employee contributions is $18,000 for 2015. Determine what you can afford and make the largest contribution you can. As your career, and salary, progress, don’t forget to increase your contribution as it is available to you.
  3. Get the entire employer’s match. Review your plan to understand your employer’s contributions. Your Human Resources department should be able to help you.


If your employer does not offer a 401(k) program, you may consider contributing to an IRA. There are a couple of options:

  1. Traditional IRAs. Making annual contributions to an IRA can add up significantly, especially if you start early. The contribution limit for 2018 is $5,500. In addition you can contribute an extra $1,000 if you are age 50 or over There are rules about eligibility and tax deductibility to consider, but do not ignore this powerful tool.
  2. Roth IRAs. This relatively new planning tool offers many of the benefits of traditional IRAs, but the extra benefit of distributions never being subject to income tax. As with traditional IRAs, there are eligibility rules to consider and it may be advisable to consult with a tax or retirement planning professional to get a complete understanding of the rules.
  3. Other savings. IRAs offer tax benefits that make them ideal for accumulating funds, but saving and investing in a regular account still makes sense. Consider some form of automatic savings plan that moves funds from your checking account into a “special” account every month. This forced discipline makes it easier to develop the savings habit.

Open a savings account

  1. Open a savings account and set up automatic transfers. Starting to save early is not only a good habit to start, but it builds security that can protect your other finances. Automatic transfers make the process easier but being one less thing you have to think about. If you start saving with your first job, or in your 20s, you will be amazed at how the amount accumulates.
  2. Remain consistent. Throughout your career, your income will increase and your finances will change. As your income grows, continue to grow your savings by transferring a larger portion of your pay. Maintaining a budget will help you see how much of your income can be saved for savings.

Establishing a plan of action early in your career will make planning for your dream retirement easier. Developing a relationship with a bank will ensure you stay on plan and can help if your situation changes.

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