How to Start Saving for Retirement

/ BY / Personal Finance

When you’re in your twenties and even thirties, retirement probably seems like something so far away, you don’t have to worry about it. In fact, one recent study from Scottrade found that over half of all people born after 1980 who were of working age still hadn’t started saving for their retirement.

When it comes to retirement, however, the most important thing to do is start early. Here are a few tips for planning and saving for retirement in your twenties and thirties.

In Your 20’s

Your twenties are the ideal age range to start saving for your retirement thanks to two things: time and a little something called compound interest. In simple terms, compound interest is interest that accumulates on both the principal amount as well as the interest you’ve already earned. The sooner you let this start working for you, the better.

Some of the best ways you can start your retirement planning in your 20’s include:

  • Sign up for your 401k at work. If your company offers a 401k retirement plan, sign up for it. The advantages of 401k plans are numerous. Your income is taxed after the money is taken out, so you pay less income tax. It also grows tax-free, and you don’t have to pay taxes on it until you withdraw it from your account. What’s more, most employers will contribute to your 401k as well. To not take advantage of a 401k is essentially passing up free money.
  • Watch your debt load. Most people in their twenties have student loans to pay off, and perhaps a car loan and maybe a new mortgage as well. Avoid too much debt at this point. When you max out credit cards and go into other forms of high-interest debt, the money you could be putting towards savings and retirement is eaten up by high interest monthly payments. Keep your debt manageable and avoid carrying balances on credit cards.
  • Keep a separate emergency fund. While you’re saving for retirement, it’s also important to keep a separate emergency savings account. This will help cover unexpected expenses like a job loss, car repair, or medical deductibles and expenses without having to dip into your 401k.

In Your 30’s

If you hit thirty or thirty-five and realize you haven’t been saving for retirement like you should, don’t worry. While you will need to ramp up your savings efforts to retire by 65 or 70, you can still save in a number of ways.

  • Increase your 401k contributions. If you aren’t contributing the maximum account to your 401k, now is the time to start. Most people start to get raises as they advance their careers. Instead of spending this money, contribute it to your 401k.
  • Consider a Roth IRA. If you’ve already maxed out your 401k contributions, you’re on the right track. You can save more and take advantage of tax-free interest with a personal Roth IRA. There are different types of Roth IRAs, and some are subject to income limits, so do your homework before choosing the best one for you.
  • Don’t cash out of 401k plans when switching jobs. It used to be that people stayed with a company for the duration of their careers. These days, an uncertain economy, layoffs, and the prospect of advancing your career elsewhere make switching jobs and companies the norm. When you leave one company, you have the option of cashing in your 401k or rolling it over. Cashing it out is rarely a good move. In addition to paying taxes on the amount, you’ll also have to pay a 10% early withdrawal penalty. 

Whether you’re in your twenties or thirties, the time to start saving for retirement is now. The sooner you start, the more comfortably you can retire when the time comes.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.