Retirement Planning for Young Adults


The time to begin saving for retirement is while you are young. Though retirement may seem light years away, it will come sooner than you expect and if you are unprepared, you will not be able to enjoy it the way you want. Let’s consider a couple ways to plan for your retirement.

The first step to take in planning for retirement is getting rid of and staying out of debt. Aside from purchasing a home, you do not want to get into a lot of debt. Student loans, credit cards, IOUs to grandma, etc., all need to be paid off as quickly as possible. A good strategy for this is to pay off the smallest debt first and work your way up to the largest one until they are all paid off. Beginning with the smallest debt may seem counter intuitive, but when you are able to pay off that first debt quickly, you’ll taste success and be able to move on to the next one with enthusiasm. This step may take some time, extra work, and penny pinching, but it is well worth it, especially when you come to the next step, saving and investing.

Saving is key if you are going to enjoy retirement. Since you are still young, you have time and the power of compound interest on your side. Consider this: If you started saving $300 per month for 20 years in a tax deferred account, assuming 12% return, you would have about $515,000 for retirement. Pretty nice, huh? But if you gave yourself 30 years, just 10 years more, you would have a whopping $1.68 million saved for retirement! That’s three times as much, saving only $300 a month! That is the power of compound interest. The longer you save, the more you benefit. Now, the question is, where should you invest this money?

Depending on where you work, you may be able to contribute to a retirement such as a 401(k), SEP IRA or other fund. If you are not contributing to one or all of these, you need to get started. Setting aside a little money to be automatically deducted from your paycheck and put into a retirement fund is a great way to get started, and you probably won’t even miss it. In fact, you might even get free money by contributing. Many employers who offer a 401(k) will contribute a portion or even match what you contribute, up to a certain amount. Yes, you read that right. You employer will give you free money for contributing to a retirement plan. If that does not get you excited, you might be dead. Check your pulse. If your employer is offering to match your contribution, get that set up as soon as possible.

If you do not have that option, look into a ROTH IRA. A ROTH IRA is an individual investment account that is allows for tax free withdraws. That means that you can contribute money to the fund now, and when you withdraw it later, you do not pay any tax on the appreciation of the funds. This is a great investment fund for young people because it will allow you to get the maximum return for your dollar without having to pay tons of taxes years down the road. There are certain restrictions on these accounts, like when you can withdraw and how much you can contribute, but if you plan well, spend wisely, and contribute regularly to your retirement fund, you’ll on your way to a great retirement.

So the basic steps to planning are these: (1) Get out of debt as fast as you can and (2) Start saving, especially if you have the option on contributing to a fund that is matched by your employer. Start now and let the power of compound interest work its magic!

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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