Leveraging time: Retirement saving for millennials

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When it comes to saving for retirement, time can be our biggest ally, or worst enemy. For workers in their 20s, it’s often both.

Setting aside money for their golden years doesn’t rank high on a list of priorities for many twenty-somethings. Yet workers who begin building a nest egg in their 20s can ultimately end up saving more with less financial pain than those who get started later.

Here are some tips for workers in their 20s:

1. START EARLY

The sooner you start saving, the greater your potential balance when you retire. Financial experts stress that everyone in their 20s should find a way to save some of their earnings for retirement.

Schwab recommends you set aside 10 percent to 15 percent of your pretax annual income. If you start early, that level of contribution can probably suffice until you retire.

“If you do that, you should have a relatively comfortable retirement,” said Schwab-Pomerantz.

Put it off until your 30s, and then you’ll have to save 15 percent to 20 percent annually. Wait until your 40s, and the recommendation jumps to 25 percent to 35 percent.

2. EMBRACE INVESTING

Investing in the stock market remains the best long-term play to generate the most return on your money.

“If you’re 20, 25, or even 35, you still have 25 to 35 years to ride out the highs and lows of any investment,” said Lyssa Thaden, manager of partner education at American Student Assistance, a nonprofit agency that caters to college students and graduates.

For young investors, the easiest approach is to invest through an employer-sponsored retirement plan like a 401(k). The money is taken out of your paycheck on a pre-tax basis and invested by a fund manager. If your employer offers a matching contribution, make sure you contribute enough to get the full matching benefit.

No access to a 401(k)? Consider opening a Roth IRA account. Your contributions will be taxed upfront, but in your 20s you’ll likely be in a low tax bracket. When you withdraw funds after you turn 59½, the funds and gains earned along the way are tax-free.

3. SAVE AUTOMATICALLY

If investing is not an option right now, try setting aside some money, even if it’s just $20 a paycheck, into a savings account.

4. STICK TO A BUDGET

Success in reaching any saving goal requires living within one’s means. That may require tracking your expenses and then making and sticking to a budget.

Although saving for retirement is important, experts say it shouldn’t take precedence over building up an emergency fund of three to six months.

5. KEEP DEBT MANAGEABLE

Avoid high-interest credit card debt and make a priority of paying down credit card debt.

6. SAVE ON LIVING EXPENSES

When you’re younger, you may be more willing to split housing or live at home. Lower housing costs can enable you to pay down debt, save money and begin building your nest egg.


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