Nobody thinks about how they are going to pay their bills when they've grown old and retired while in their early 20's. The secret to retiring with a savings that allows you to live comfortably is to start saving as early as possible.
That means while you're out with your friends on a Friday night at the age of 21, you should also have in the back of your mind that one day you will be of retirement age planning to schedule a bunion surgery.
Saving for retirement doesn't have to be confusing or intimidating. If you take our advice, you can start your retirement savings tomorrow.
Start Now
It's never too early to start saving for retirement. In fact, in your early 20's is the absolute best time to start saving. The more time you have to let your money sit and take advantage of compound interest, the more money you'll have to retire with.
Save as much as you can when you're young. Most likely, you don't have dependents to take care of – only yourself. This is a great time to put away as much money as you can, especially because you don't have too many bills to pay at the moment.
Even if you're just saving $30 a week, it's better than nothing!
Open an IRA
IRA stands for Independent Retirement Account and is a separate retirement account than one you may receive from your employer. There are three types of IRA accounts to choose from.
Traditional IRA – Your money is taxed once you withdraw it from your account, but your contribution is also tax-deductible.
Roth IRA – Your money is taxed before you make your contribution, but is not taxed once you withdraw it.
SEP IRA – Specifically for self-employed individuals and business owners who can make tax-deductible contributions.
You can withdraw from these accounts at the age of 59 ½.
Take Advantage of Your 401(k)
If your employer offers a 401(k) with company matching, make sure to take advantage of it. Contribute as much as you can and receive free money from your employer.
Who doesn't like getting free money?
Make Aggressive Investments
When you're young, you can make more aggressive investments than when you are closer to retirement age. You have more time to make up any money that you lost in a risky investment.
While the idea of losing money can be scary, remember that a big risk investment can mean a high return. Some of these investments can set you up for success in retirement.
Set a Goal
A big question many people have when thinking about saving for retirement is how much will they need to save. There are plenty of retirement calculators available and financial advisors who can help you determine this number.
Once you've figured out and set your goal, you will have a better idea of how to save and create strategies to achieve it.
A good idea is to update this goal every few years to reflect your lifestyle and current finances.