“But I’m only 20!”
“I have the rest of my life to do that.”
“I have student loans to worry about.”
Any of those excuses sound familiar? (If you say no, and you still haven’t contributed to even a savings account, we’re talking to you).
If your parents haven’t told you yet — and we know high school isn’t preparing you for it — saving for retirement is one of the best things you can do for yourself in your early 20s. But if you haven’t thought about it, don’t worry. Most millenials actually admit they haven’t either (or so say 41% of Millenials interviewed, according to Wells Fargo).
So why should you be doing it? And how? Here’s a brush-up on what to be thinking about as you consider saving for retirement. And always remember — time is money (and compounding).
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Start now.
Sure, it’s redundant right now. You’re making the least amount of money you ever will, and you have the most amount of debt. How can that make sense? Compounding. And it’s powerful. Consider this example from financial firm Vanguard:
“Imagine you start saving at age 25 and dutifully put away $10,000 a year, including any matching contributions your employer offers. But at age 40, you need to stop saving for some reason. Your friend starts saving at age 35 and saves the same $10,000 a year for the next 30 years, until you both retire. At that point, all else equal, you'll have more money than your friend, despite having put away only half as much.”
2. Understand when to prioritize debt over investment.
We’ve all been there: the dread in watching the numbers grow on your student loan debt each year you edge closer to graduation. Coupled with other bills, like a car, credit cards, or even a cellphone payment, you wonder why it makes sense to save when you could minimize debt. Here, it’s important to look at what you’re paying to stay in debt -- compare interest rates across the purchases and accounts you owe on. Pay down your highest-interest bills.
Then, if the annual percentage rate (APR) of the bills that remain is higher than what the rate of return would be from what you can retire, stick to debt minimization. If your return on investments (ROI) from the sums you invest would earn you more, focus on investing the money.
3. Take yourself out of the equation.
Perhaps the easiest way to start saving is to do so automatically. If you set up automatic transfers from a savings account into an investment account, or even an easy-to-use and credible investing app like Acorns, you won’t have to worry about the money you’re giving up to savings — you won’t even see it. Automate your accounts to take a percentage out monthly, and don’t look back (unless you’re checking performance for gains!).
4. Open an IRA.
Since you’re still in school and not working full-time with the benefits of receiving a 401(k) with an employer match, start your own personal investment account through an IRA. Each year, individuals are allowed to save up to $5,500 in a Roth or traditional IRA. Low or no-income earners should look at opening a deductible IRA which doesn’t set limits. The account is also tax-deferred so you won’t have to worry about paying taxes on it now (but alas, it will come later).
5. Begin learning about investing.
In the not-so-distant future, you’ll want to start considering building a diversified investment portfolio. Now’s the time to begin learning about how to do so. Plenty of banks provide tools, resources, libraries and even financial planners that can give you support and a way to start thinking about building an investment portfolio. Pay attention to the markets, and learn about how the economy at large is functioning (and the outlook for a variety of industries you might consider investing in).
Just remember, it’s never too late to start!
