When you are in your 20s, and even as you get into your 30s, retirement can feel like it is a million years away. For most people, their 20s and your 30s are the years spent defining themselves. It when most people develop careers, start a family and get themselves established in their lives, often leading to retirement savings staying firmly planted on the back burner. However, if you plan strategically and start saving early, not only will you be ahead of the game at retirement, you will be putting yourself in the best possible financial position today and later in life.
Payoff Your Debt First
Paying off your debt should be the first thing on your list of priorities. Any extra money in your budget needs to be immediately allocated to paying off the costly student loans you racked up in your 20s and 30s, in addition to any credit card debt you have accumulated over the years. Make a plan and payoff your debt prior to investing.
Think in the Long-term
Since you really do have plenty of time before you retire, – often 20 or 30 years if you start investing early – do not concern yourself with short-term dips in the market when you opt for stocks and mutual finds. However, consider portfolio to include traditional savings accounts, money market accounts, bonds, mutual funds and CDs.
Begin allocating 20 percent of your gross income to these savings vehicles, and make it a habit. Add to your accounts each month, like clockwork. If you need help choosing your investments, consider hiring a financial planner. The $200 to $300 it costs usually pays for itself several times over. Professional help is always a good return on your investment, especially when it comes to investing in your future.
401(k) Plans
A 401(k) is an excellent investment vehicle, regardless of your age. These plans are company sponsored and managed plans wherein employers make matched asset (or near to matched asset) contributions to your retirement fund. In addition, one of the best things about 401(k) plans is that you can move it from one job to the next, in the event you change employers throughout your career – and chances are, you probably will -, all the while keeping you ahead of the retirement planning game.
IRAs
Accounts) are also tremendous retirement savings vehicles. With annual gains averaging between eight to 10 percent, maxing out your IRA with contributions up to $5,000 a year (for most people), or around $400 a month, is a clever strategy, especially in your 20s and 30s. You can even front load your IRA with incentive payments from your employer, short term windfalls (inheritance and lump sum winnings) or even with your tax refund (if applicable).
Because IRA’s and 401(k)’s act as a safeguard for your money until retirement, these accounts make it less likely that you will to dip into them for trivial expenses – it comes with a penalty if you do. However, these accounts also keep your money liquid enough to be accessible in the event of an emergency, if you need it prior to retirement. Regardless of how you use them, however, larger (tax-free gains) on your savings will usually lead you on the path to prosperity.
Start planning now to reap wild benefits later. You will be glad you did.