While it can be tempting to put of retirement planning until you're much older, beginning to save for retirement when you're still in your twenties is a very smart financial move. By beginning to save while you're still so young, you maximize the amount of time your money will earn compound interest. Even setting aside a modest amount of your income each month can make a huge difference down the road. Here are three tips to keep in mind when retirement planning during your twenties:
Take Care of Short-Term Needs First
This may not be what you were expecting to hear in an article about retirement savings, but the truth is that if you have looming financial needs, you are unlikely to be able to save for retirement at all. This is the time to tackle any high interest debt that's eating away at your disposable income, and create an emergency savings fund in case you lose your job or have another unexpected emergency.
Once these needs are met, you will be able to begin saving for retirement without it being a source of stress. If you don't currently make enough money to allow this to happen, consider applying for better-paying jobs, or working a second part-time job on the side until your finances are more under control.
Sign up for a 401(k)
If your work offers a 401(k) plan, be sure to sign up for it. 401(k)s offer many benefits, including a much higher rate of return than a savings account and potentially lower income taxes. Perhaps the best perk of a 401(k) plan is that many employers will match your contribution, essentially adding free money to your retirement account each month. If your job doesn't offer a 401(k) plan, look into a Roth IRA instead.
Use Automatic Deductions
Regardless of whether your retirement savings is in a 401(k) or a Roth IRA, it's a good idea to set up automatic deductions. This means that your contributions to your retirement savings account will come out of your paycheck automatically. You will soon forget this money is even "missing" and it will prevent you from skipping your contribution on any given month. Just remember to increase your retirement contribution if you get a raise or a better-paying job.
By following these tips, you will be setting yourself up for a bright financial future and a stress-free retirement. Talk with a retirement planning or investment professional like Richard Brown Investments for more tips.