Preparing for Retirement In Your Twenties

It is never too early to begin planning for retirement. In fact, the earlier you begin saving and preparing for retirement, the easier it will be to transition into the next stage of life comfortably and without worry. Beginning to save and invest early will allow your money to grow over time, and will actually cost you less out-of-pocket, with a much higher return.

There are several steps you can take now, in your twenties, to begin preparing for retirement. Your main focus now should be on eliminating debt and creating a safety net of savings. You will have more time to focus on the specifics of retirement planning in your thirties, but developing good financial habits now will make that planning much easier.

Do not depend on social security, a pension plan, or any form of government assistance. You never know what will happen in the next thirty to forty years. It is much better to feel safe and secure in your own investments when planning for retirement.

Pay off all student loans and/or auto loans as soon as possible. The cumulative amount you are paying in interest grows the longer you are continuing to pay. Make sure that, at the very least, you are making the minimum loan payments on time and have a 3-6 emergency cash fund before you begin putting money aside for retirement.

Make a budget and stick to it. Know where your money is going each month. In order to save and invest responsibly, you must know how much money you have at your disposal. Set aside a certain amount each month for savings and retirement. If you choose to save 25% each month, consider contributing that amount to different places: 10% in your 401(k), 10% in a savings account, and 5% in a Roth IRA or other investments.

Make the maximum contribution to your 401(k) and max it out as soon as possible. Most employers will match your contributions and all contributions are tax deductible.

Open and contribute to a Roth IRA if eligible. If financially possible, contribute the maximum amount allowable each year (currently $5,000).

Open a high yield savings account. Budget a certain percentage of your income every month towards savings, in the range of 10-25% depending on how much you make.

Have at least 3-6 months income in an emergency fund. This is an absolute must. If something were to happen, a job layoff or illness for instance, you do not want to have to take money from your retirement savings or investments.

It may seem hard to even imagine retiring now while you are still in your twenties, but it will arrive sooner than you think. It is better to begin preparing now so that you will know what to expect than to wake up one day in your forties and realize that you don't have enough for retirement and are forced to consider the possibility of spending decades more in the work force.