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Not thinking about retirement in your 20s? Think again.

Retirement planning is easily overlooked in your 20s or 30s as you focus on paying down debt, buying a home or starting a family. Life is busy, and everyday expenses are high.

Tags: Goals, Planning, Retirement
Published: September 12, 2018

What you may not realize is the impact today’s spending and saving habits will have on your retirement.

Houses are expensive, and it takes time to save enough money for a down payment. If your family is also dealing with paying off student loans, retirement planning is likely to move down the priority list. The problem is, long-term investing for retirement is far more effective when you start young than if you try to play catch-up.

Here are five tips that can help you begin saving for retirement in your 20s.

Tip No. 1. Find extra income to put toward retirement

One of the best ways you can prepare for retirement is by finding some extra income in your budget to put toward your savings. Extra income is the money on hand after you’ve covered monthly expenses like food, shelter and transportation. Optimize your extra income if you can.

For instance, make a pre-tax contribution toward your 401(k) at work to get the employer match. You don’t have to find large amounts to put aside initially. The important thing is to start saving early.

Tip No. 2. Prepare for the unexpected

Where will you find money to cover a financial emergency? If you’re unprepared, you may fall back on your retirement savings, but this can negatively affect your progress. Preserve your savings by establishing an emergency fund that has about 6 months of living expenses in it. If you’re a dual-income couple with no children, you can probably make ends meet with slightly less than 6 months’ expenses if one of you loses a job or has a health issue. Take a close look at your expenses, and set an appropriate emergency fund amount.

Those with larger fixed expenses or more family members relying on a single income should have a larger emergency fund in place for peace of mind. If budgeting is too tight, an emergency fund can also provide some backup savings you can dip into without touching your retirement accounts. If you’ve used up your emergency fund, be sure you backfill that account when you are able.

Tip No. 3. Focus on retirement when possible

Once you’ve built an emergency fund and other more immediate financial priorities, consider reallocating more money toward your retirement savings. If you’re already receiving the maximum employer match on a sponsored retirement plan, consider increasing your contribution by 1 percent on a yearly basis. If you receive a raise, there’s a good chance you won’t miss that 1 percent increase. Keep applying that small increase until you’ve reached the maximum contribution you can make. And, if you’ve already maximized what you can contribute toward your 401(k), consider working with a financial professional to find other savings vehicles that will work best for your family, such as an IRA.


Percentage of millennials who have saved nothing for retirement. 1


Percentage of millennials who are participating in employee-sponsored retirement plans (66% have the option).1


Percentage of millennials with more than $20,000 in student debt. This may delay marriage, children and home buying.2

Don’t forget your retirement accounts are quietly working for you through the compounding of interest over time. The concept of compound interest can reward those who start saving as early as possible. Even a hundred dollars here or there has the potential to grow to a significant amount over a number of years.

Tip No. 4. Save for major purchases

If you’re looking to buy a house, consider contributing toward an account earmarked for the down payment. Saving enough to avoid paying private mortgage insurance (PMI) will help your finances in the future. If you already have a mortgage with PMI attached to it, review your options for paying down your mortgage so you can qualify to have it removed. Avoiding PMI can add up to a significant amount to put toward your savings.

Tip No. 5. Work together

Remember that you are at the start of a long journey and it takes time to work toward reaching your retirement goals. You and your family may not always agree on the best possible financial actions to take, so work together to consider how different priorities can be addressed.

Retirement planning is a deliberate process that doesn’t happen by chance. Consider your financial situation and develop strategies that can evolve with your ever-changing circumstances. Work towards building your savings whenever you can, and remember the concepts of compound interest can work in your favor when you start early.


For more, discover the best retirement savings strategies for each decade of your life: “Saving for retirement: A complete checklist.” For specific strategies for millennial women, read “3 ways millennial women can start planning for retirement now.”


1 “Millennials and Retirement: Already Falling Short,” National Institute on Retirement Security, February 2018.
2 “Weighing Down Workplace Engagement,” ORC International Survey, commissioned by Padilla, January 2017.