Being under 30 has both good and bad sides. The good thing is that you’re young and there’s a whole world out there awaiting to be discovered. On the downside though, the student debt is looming large… There is also the growing credit card debt, health insurance issues, and so on. No wonder no one is thinking about retirement — there are real problems that need to be addressed right now.
On the other hand, there is also a different way of thinking, one that is more mature. Problems were always there, but today opportunities are bigger than ever. In short, it’s good to be alive today.
With that in mind, we have prepared a few retirement tips for those under 30. Yes, you should be thinking about it; here’s what we’ve got…
1. Realize that retirement is coming
Just don’t freak out… Instead spend some time to “know the enemy,” and by that I mean realize how much money you will need to save in the next 30-40 years. Once you have the figure, you will be able to plan the concrete steps to achieve it.
There are many, many years until you reach that goal so, again, don’t freak out when you come up with a number that may be too big to comprehend. After all, this is a long-term project that takes time to complete.
2. First things first
Before starting putting some serious money towards your retirement, you should:
a) Create an emergency fund of at least $1,000 to be used for unforeseen costs only — think: car repair, medical costs and so on. Eventually, this fund should be big enough to support you for 1-3 months in case you lose your job.
b) Repay loans and credit card debts. A student loan is different as it can be massive, so first deal with smaller debts. The general rule is that the credit card is best used without the “credit” part. Buy something only if you can afford it. Nonetheless, you may have some debt, and in order to start (properly) saving for retirement, you should first clear them out.
c) Tackle the student debt. This can take some time, and you will have to come up with a plan. Look beyond monthly minimums so you could repay it as soon as possible. It won’t be easy, but it’s worth the effort.
Meanwhile, when you get the job, you should…
3. Contribute to your 401(k)
Even if it’s tiny amount, regularly putting money towards your retirement as early as possible is a good habit. And if your employers offers to match your contributions, even better. This is essentially free money, so use it.
The best part is that money for your 401(k) is typically automatically reduced from your paycheck, so you won’t even notice it was there. Ok, you will notice, but you may not mind it that much since you know it’s going to the good cause (your own retirement).
Alternatively, if your employers doesn’t offer the 401(k) or a similar 403(b) account, open a traditional IRA or Roth IRA and save that way. The former offers tax-deferred growth, meaning you will pay taxes on your investment gains only when you make withdrawals, and your contributions may be deductible (if you qualify). As for the latter, it doesn’t allow for deductible contributions but offers tax-free growth, which means you owe no tax when you make withdrawals.
Both plans are designed to force you to save as making a withdrawal before retirement age comes with a penalty.
5. Automate yourself
Put some effort to understand the retirement planning, think it through and “automate yourself.” The idea is not to stress over it, but to understand the road ahead and act like it’s a normal thing.
Retirement planning is a long-term game after all, and every now and then you may slip off the course; the important thing is to return to the normal path, and eventually spend your golden years in harmony. Or however you wish to spend them. But I’m getting ahead of myself, you’re still not 30. 😉