How To Save For Retirement In Your 20s

Andrew Zaeh for Bustle

If you're in your 20s and just starting your career, you're probably not spending too much time thinking about what you'll do when it's over. But maybe you should. Saving for retirement when you're in your 20s isn't sexy, but experts say it's important to start young.

Me? I did everything wrong. Instead of investing in my 20s when my expenses were low, I spent all of my money because I wanted to live my best life. I didn't get my first retirement account until I was 30, and then I cashed it in so I could stay afloat after leaving a horrible job. Now I have to start from scratch

"Even if retirement is not on your radar yet, it’s important to start saving for this potential milestone early because the more time you allow your money to grow, the easier it may be to pursue your goals in the future. If your company offers a 401(k) plan, take full advantage of any employer match — it’s free money that could make a major difference in overall savings," Anna Colton, Retail Banking Region Executive at Bank of America, tells Bustle.

Ellevest, a financial investment company, recommends putting 20% of your income away for "Future You." This is something I didn't do, but wish I had.

"Easier said than done (and flat-out impossible) sometimes … but keeping your eyes on that full 20% to Future You, and pushing for it as hard as you can, will help you get to your goals faster. Start with whatever you can today and try to boost it up a percent or two a couple times a year. Raises, bonuses, and tax refunds are great for this," the Ellevest team wrote on its blog.

Building a saving habit doesn't have to be a total fun-suck, either; you can save as little or as much as you won't miss from your pay check, and it will still help you meet your end goals. Here's what you should know about investing in your 20s.

1. Saving Sooner Means Investing Less, But Getting More

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According to CNN Money, the sooner you start saving, the more time your money has to grow. This means that even if you invest less money overall, you could end up with more for your retirement.

"Here's an example of what a big difference starting young can make. Say you start at age 25, and put aside $3,000 a year in a tax-deferred retirement account for 10 years — and then you stop saving — completely. By the time you reach 65, your $30,000 investment will have grown to more than $338,000, (assuming a 7% annual return), even though you didn't contribute a dime beyond age 35," CNN Money reported.

On the flip side, if you don't start saving until you're 35, and you save $3,000 a year for 30 years, you're investing three times as much money. But because that money missed out on those 10 years of growth, that larger investment will result in less money: "only about $303,000, assuming the same 7% annual return," says CNN.

That's a big difference. This is why Amanda Clayman, a financial wellness advocate for Prudential and certified financial therapist, tells Bustle forming good money habits in your 20s is important.

"Saving for retirement in your 20s can benefit your life in some significant ways. First, you reap the advantage of time for your investments to compound and grow. Second, directing your money toward your goals is like a muscle that you develop," she explains. "Good habits that you learn young can mean a healthier financial life overall."

2. Set Financial Goals

When thinking about retirement in your 20s, set goals and financial milestones to help yourself stay on track. "Knowing how much you need for retirement based on your personal vision for your future makes the process of saving and investing a lot more rewarding. You can work with a financial advisor on how to set and achieve these goals," Colton advises.

Figuring out what you want your retirement to look like when you're just starting your career can seem daunting. This is why it's important to break it down into manageable steps.

"It can help to think of the broader goal of preparing for retirement in its component parts. Saving money and putting it aside is one part, opening an investment account and choosing your allocation is another part, reviewing and readjusting is another part. Set a timeline for sorting through each of these components. For example, to figure out how much to save, you might want to explore your cash flow plan in detail, or play with some retirement calculators to come up with a target." Clayman explains. "How much time do you think those activities will take, given the other goals and obligations in your life?"

She says that putting it off can result in your potentially not taking any action at all. "I often find that people struggle with big complex goals that don't have an immediate deadline, because they just keep thinking, 'I'm busy today, or this week, but I will get to it soon.' It's much more effective to say, 'I need five hours to go through my budget and create a savings plan. I can do that on Saturday. It will probably take me one to two hours to figure out which online brokerage I want to open an account at, and to go through the onboarding process. I will do that at the start of next month, once I have the first month of savings to transfer when I open the account.'"

3. 401(k) Is Not The Only Way

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Ideally, everyone would have access to an employer match 401(k). Unfortunately, that's not the case. But that doesn't mean you can't start saving for retirement. "If your employer doesn’t offer a 401(k) plan, you can still invest and save for the future. If you don’t have access to a 401(k) plan, think about investing in a Roth IRA, an individual retirement account," Colton says.

"A Roth IRA is best for those who are further from retirement because contributions are made post-tax, meaning that when you make withdrawals in retirement (when you are potentially in a higher income bracket), those withdrawals are not taxed."

4. Ask For Help

All of this retirement stuff is confusing, and it's totally OK to ask for help. "When it comes to preparing for retirement, I recommend turning to professional guidance, either online or in person," Colton says. "Professional financial service advisors have a wealth of information to help you develop your confidence in managing money and investing in the market." Your bank might be able to put you in touch with an advisor on their staff. Ellevest also offers access to certified financial planners who can help you realize your goals, or you can find local planners to meet with in person.

5. Remember, You're In Charge

Sometimes life goes sideways, and that's OK. If you encounter unexpected expenses, Clayman says you can change how you're saving and investing. "All of these decisions and amounts are adjustable! If an initial saving target starts to cause you to go into debt, scale it back or re-examine your spending. If you don't even notice that money going out, you may want to layer in some other savings goals or boost your target amount," she advises.

If you're like me, and you haven't started planning for retirement, it's never too late to get started. There are plenty of resources available to help you figure it out. You don't have to go it alone.

Experts:

Anna Colton, managing director, Consumer Bank and Merrill Edge Division Executive, Metro New York and Mid Atlantic, Bank of America

Amanda Clayman, financial wellness advocate for Prudential and certified financial therapist