Planning for Retirement in Your 20’s
When you are loving life in your 20’s, and even your 30’s, it can be hard to focus on retirement. This is an important part of life that many young people overlook until it’s too late. You should start planning for retirement the minute you graduate from college and enter the workforce. We have compiled some very important retirement planning tips for your 20’s so you can get ahead of the game.
Collect the Full Company Match
If you work for a company that provides a match to anything you deposit into a 401(k), it’s in your best interest to collect the full company match. Don’t wait until you are 30 to start putting money in a 401(k). This will only put you behind the eight-ball if your goal is to retire by the age of 65. It will also require a larger chunk of your income to do so.
Negotiation is a great trait to have in life, especially when it comes to negotiating higher salaries. Whether you are working towards a raise or looking for a new job, you should ask for $5,000 more than what is being offered. Doing so in your 20’s can lead to $634,000 more in your lifetime earnings, according to research from Temple University and George Mason.
Cheaply Diversify Your Portfolio
Do your best to cheaply diversify your portfolio. It’s recommended by most experts that your investments should be 80 to 90 percent in stocks. It’s a good idea to spread your money around when investing, but do your best not to spend a ton of money on fees. When you read a prospectus, look for expense ratios listed. The smaller ratios listed, the better for your bottom line.
Watch Your Credit Card Debt
You need to closely watch your credit card debt when in your 20’s. This is when things can get out of control for most young people. It is recommended that you maintain a credit utilization ratio of 30 percent. For example, if your limit is $10,000, 30 percent of that would be $3,000. So, do not go above $3,000 on the credit card as a balance you carry.
Fund Health Care
Take it upon yourself to fund your own health care. If you are offered a health savings account from your employer, take full advantage of it. The money builds up free from taxation and withdrawals can be made retroactively. Make sure you put in your personal limit and have your employer do the same each year.
Picture Yourself at 65
Do your best to picture yourself at the age of 65. When people do this they are able to start saving for retirement more easily because they don’t want to find themselves working much further past 65.
It’s never too early to start planning for retirement. Even if you are in your 20’s, it’s still a smart idea to speak with a certified public accountant. The experienced staff at Tobin & Collins can answer all of your retirement questions and help you put a plan in place with our more than 50 years in the industry.
*Content Updated: November 28, 2017