Here’s Exactly How Much to Save For Retirement in Your 20s

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One of the biggest financial faux pas made by millennials today is not saving enough for retirement. You might think “I have plenty of time to save, I don’t have to start now” – but that is actually the opposite of how you should be thinking. I see this every day on my own site, where investing and retirement related topics get the lowest click thrus and shares on social. People just aren't interested in talking about how to save for retirement in your 20s, but I really want to change that. 

Why Start Now?

Most retirement accounts – such as IRAs and 401(k)s – grow through compounding. Compounding interest means that you earn money based on the amount that is in the account each year, including the interest that has been added in previous years. That means that the longer that your money is in the account, the more time it has to grow.

So by starting your saving early, you’re setting yourself up for major growth. 38% of retirees say that if you wait until your 30’s to start saving, you’ve waited too long.

How much do you really need to save for retirement in your 20's?

The first thing you should do when planning your savings strategy is figuring out how much you will need to retire.

There are a wealth of retirement calculators out there that will help you learn how much you should expect to save to replace your monthly income. We recommend NerdWallet’s retirement calculator to help you figure out how much you should save monthly, and LearnVest’s lifestyle calculator to help you learn how much you should expect your lifestyle to cost.

Remember that your retirement savings are meant to replace your income once you leave your job. So plan to save enough to cover your lifestyle (whatever that looks like!) in retirement. Will you be traveling the world? Or staying at home working part-time? Consider this when calculating your retirement costs.

How Can I Start Saving for Retirement?

Your first stop should be at work (if you work in a traditional office) and see what types of retirement saving options they offer employees.

But saving on your own is possible too and you can open an account in as little as 10 minutes. With new robo-advisors and increasingly digital nature of financial information and apps, you can do it all online and it's easier-to-understand and more visual than ever before. We like TradeKing and Betterment for our financial and investing needs. TradeKing and Betterment for our financial and investing needs.

Yes, those are affiliate links – but they're also just really neat tools. Read our TradeKing review and tutorial for getting set up here.

What if I can't make that? How much should I save now?

According to NerdWallet, you should try to save 2x the amount of your annual pre-tax salary by the age of 35. So if you make $40,000 a year pre-tax, try to have $80,000 in your retirement savings by the time you’re in your mid-30’s. This will help your money grow to its fullest.

CNNMoney also has a super-handy graphic showing how much you should have saved by age 25 depending on your income. Check it out!

Another rule of thumb would be to try to save 15% of your monthly income. This can either be post-tax (if your employer doesn’t offer a 401(k)) or pre-tax (try setting up automatic debits from your paychecks!)  

Think about how to maximize your contributions?

There are plenty of ways to increase your investment contributions. One of the easiest is to set up automatic debits and contribution increases. If your employer offers contribution matching, make sure that you are contributing enough to earn the match. Don’t leave free money on the table!

You should also learn more about how 401(k) or IRA contributions are invested, and how to diversify your stock allocations.

And last of all, don’t be afraid to talk to a professional. Experts at investment firms like Fidelity can help you create a retirement plan that works for you.

Since as long as you can remember, people have been asking you about your future. What will you be when you grow up, where will you go to college, and when will you retire. One thing required for all of those things is money. If you read about personal finance online, it can seem like every, single website is telling you to “Save for retirement” and “start investing.” We know that advice is great, but how are you supposed to do that when you barely have enough money to live?

Investing in your 20's can seem scary and overwhelming, and worse yet like something we have nothing but time to do. Investing isn’t as difficult as you think, and though you have more time that doesn’t mean you should wait.

Related: 7 Money Mistakes You'll Make in Your 20's

 

How to Save for Retirement in Your 20's – 6 Steps for Success

Step 1: Sign Up For 401k And Get Company Match

Your company's 401k is the easiest way to start investing in your 20’s.

Call or go to your HR department and they will gladly help you through the process. Most companies have an online option (something all we 20 somethings appreciate).

It may be that your company plan has high fees so you don’t want to put all your investments in. If that’s the case at least invest enough to get the company match. A company match is essentially free money, or rather money you’re owed. Don’t cheat yourself out of money you’ve earned.

Related: Everything You Need to Know About IRA Accounts

Step 2: Max Out Tax Deferred Plans

For 2017 the maximum contribution to a 401k is $18,000 allowing you to lower your taxable income.

If the fees are too high you can do two things. First, you could go to your HR department and ask them to switch the investment company to one that has lower fees. That does work but not always.

The second and easier option is to simply open your own plan at an investment firm. Fidelity, Charles Schwab, etc. You won’t have the ease of having the money come out of your paycheck automatically but you will have the tax savings.

Step 3: Educate Yourself

The person who cares most about your money is you so make sure that you are as educated as possible. An advisor can help but can be expensive and won’t care about your money as much as you.

Books are a great way to educate yourself. Go to the finance section of any bookstore and you’ll see “investing for dummies” and the like. Some books I recommend are The Little Book Of Common Sense Investing, and MONEY Master the Game. There are a ton of others but those two are the best in my opinion.

Companies like Ellevest also aim to close the gender investing gap by empowering women to invest in their futures. You can fill out a free Ellevest investment plan here. (Yes, this is an affiliate link and I may receive compensation if you decide to work with them.)

Podcasts can be invaluable as well. Many finance bloggers have started finance podcasts and talk about investing, getting out of debt, and the like. Cherry pick the episodes on investing and you can learn a lot in a little amount of time.

Related: How to Get Started Investing: The Ultimate Guide

Step 4: Open Taxed Investing Accounts

Once you have saved the maximum in your 401k you’re not done there you will need to open another account. You may even be able to open them at the same place your tax deferred account is making it simple to keep track of everything.

You may go to a different broker so you don’t confuse yourself or “mix” the accounts. It’s your preference but for me, I like having everything in one place.

Related: Our Step-by-Step Guide to Opening an Investment Account

 

Step 5: Buy Index Funds

I am not an investing genius but I know that Warren Buffett is. So I take very seriously what he suggests for people to do, and what he wants to be done with his money when he dies, investing in index funds.

An index fund put simply is a fund you buy that owns a large portion of the stock market in smaller amounts. So instead of buying a stock of Google, Apple, and Snapchat, you buy an index fund that includes those in the fund.

These work because of how simple they are, they don’t work fast, it isn’t exciting but it’s the best way to grow your investment in the long term.

Related: How To Start Investing In Index Funds [Forbes]

Step 6: Have Patience

We get instant satisfaction from our phones, our games, our everything. It has become more and more difficult for people to wait for anything. So it’s important to note, especially in your 20’s, that investing will take time.

You will start investing now, and you won’t touch that money for decades. You will live a long life, have many jobs, a marriage, kids, all before you start to withdraw your investments. Yes, you can do it earlier and some do but the longer you hold on to it the richer you become.

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Editor's Note: This post was originally published on April 3rd, 2017. It was updated on August 10th, 2018.

 

 

 

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  • C@thesingledollar
    January 6, 2015 at 4:01 pm

    Well, I’m about to turn 36 and I have a cool 10,000 in my account, so yeah, I’m a little behind 🙂 I’m contributing $1000 a month right now, and I’m pretty much going to keep that up for as long as I can manage it, which is tough since it’s 25% of my gross salary.

  • jim
    September 30, 2014 at 9:00 pm

    I think it’s wonderful that your guys’ demographic is thinking about and saving for retirement. However, for those of you who are scared, be apprised that we never started saving for retirement until I was 30. School loans, kids, unemployment etc were seriously kicking our asses back in the day. Nonetheless, we have managed to get our kids thru college debt-free, done some great family vacations and solo traveling, we’re 2 weeks from paying off the mortgage and have accumulated $1M in savings/retirement and we’ve still got a good 10- 15 years of “working” (in between trips) with no debt whatsoever, so that $1M will multiply. Don’t freak if you’re not where you’re “supposed” to be. Different things happen to people at different stages – it’s all still very doable. Best of luck to all.

  • Lisa
    September 30, 2014 at 12:50 pm

    I don’t think you’re as behind as you think you are. Maybe it’s because I have a ton of friends who haven’t even considered retirement planning *shudder*. You’re at a great place!!!

    PS – it was lovely meeting you at FinCon! 🙂

  • Michelle
    September 25, 2014 at 7:27 pm

    I need to work towards side hustling to fund my retirement at this point in time. It’s hard when every pay check is different.

  • Jayson @ Monster Piggy Bank
    September 24, 2014 at 5:35 am

    I ask that question like “always”. Been working for 4 years and yet I don’t have savings that I can say I will use when I retire. It’s utterly hard when I think retirement is not priority. Starting today, I need to do something for my retirement. 🙁

    • Lauren Bowling
      September 25, 2014 at 2:14 pm

      Employer funded retirement is a great place to start as they can take it right out of your pay check!

  • Mel @ brokeGIRLrich
    September 23, 2014 at 1:27 pm

    I am super puzzled by how that infographic dude is saving that much for retirement. He’s clearly a Mustachian.

    I like knowing the minimum I would have to save. I aim for the higher numbers, but feel better knowing I probably won’t have to eat cat food if I at least save that much.

    • Lauren Bowling
      September 25, 2014 at 2:13 pm

      Haha. Living a cat food free retirement is everyone’s dream.

  • Broke Millennial
    September 23, 2014 at 12:59 pm

    First of all, you own a fricken house (that will more than likely keep appreciating in value). I keep having a tough time getting my mind around that part. So even if you’re a touch behind in retirement savings, you’re way ahead on that one.

    I’m more attuned to Bridget’s mentality. My mental goal is to have $100k saved outside of retirement by the time I get married (which I predict will be around 30). But this makes me feel I might need to focus more on retirement savings and set a high figure for that as well.

    At first I felt like my savings was WAY low because I only contribute about 6% into my 401(k) — I get a 4% match — and then I save another 15% into a personal savings account. But I also fully fund an IRA each year, which ups my retirement savings by another $458 a month if you think about it in terms of a month and not a lump sum.

    Fidelity only told me I have a goal of $1.89 million, which is way low to what I’d like in retirement. Granted, I am hopefully my annual salary will grow significantly higher than what I currently make at 25. I think closer to $3 to 4 million in retirement sounds about right — I’d like to not have to stress about money and “live a little” as they say.

    • Lauren Bowling
      September 25, 2014 at 2:12 pm

      Yes, Leah already scared me about inflation, so 2.7 million now won’t be worth too much later. And I only took about 1k out of my retirement account to put toward the house. Still, because the house is something I pay out each month, I haven’t quite wrapped my head around the fact that it is an “asset” as they say.

  • Addison @ Cashville Skyline
    September 23, 2014 at 12:21 pm

    I think about saving for retirement all the time and it’s been a major to stop saving over the past couple of months due to my recent career transition (*ahem* quitting my job). But, it’s still a major priority for me and I’m looking forward to getting back on track. You’re doing a good job, Lauren. Keep up the good work!

    • Lauren Bowling
      September 25, 2014 at 2:09 pm

      See? You’re always so nice. Still wish I could put you in my pocket and carry you around with me!

  • Stefanie @ The Broke and Beautiful Life
    September 23, 2014 at 9:02 am

    Love that you’re getting grounded in the reality of the numbers. Plus you’re already way ahead of most of our generation.

    • Lauren Bowling
      September 23, 2014 at 9:25 am

      Thanks Stefanie! I feel hopelessly behind compared to everyone else, but it’s probably just because I write about money, right?

  • Michelle
    September 22, 2014 at 11:13 pm

    I have a lot of catching up to do!

    • Lauren Bowling
      September 23, 2014 at 9:25 am

      Ditto. That is what we get for becoming young homeowners.

  • Melissa @ Sunburnt Saver
    September 22, 2014 at 11:09 pm

    Jazzed about retirement is a stretch, but it IS awesome that we are young, have time on our side, and are serious about saving. Like you, I looked up how much I ‘should’ have saved up for retirement, based on my salary now and how much I want to live on in retirement, and I’m no where near close. However, I need to save around $500 to make it, which I -think- is possible. At least we are aware of our shortcomings now, and won’t be surprised come retirement time!

    • Lauren Bowling
      September 23, 2014 at 9:24 am

      I’m trying to funnel as much as I can to it in the next 5-10 years before kids really become a factor on my budget.

  • Leah
    September 22, 2014 at 7:17 pm

    Not to like, totally freak you out, but definitely consider inflation when you’re projecting your hoped-for retirement income.

    Using a 2.5% inflation rate, $75K in present dollars will be $200K in 40 years. Going the opposite way, $75K in future dollars will feel like $27K today.

    This saving for retirement stuff is no joke!

    • Lauren Bowling
      September 23, 2014 at 9:23 am

      Noooooooooo. Liam Anderson, Why do you have to dash my hopes?! Thank you for pointing that out, maybe a follow-up post is in order?

  • NZ Muse
    September 22, 2014 at 5:28 pm

    Well, by American PF blogger standards I am probably a bit behind. So I’ll probably horrify everyone next month with my post on why I’m making retirement even less of a priority.

    • Lauren Bowling
      September 23, 2014 at 9:23 am

      I look forward to reading it!

  • Nicola
    September 22, 2014 at 2:02 pm

    I also need to re-think our retirement savings – it needs to become more of a priority I think. The trouble is, income can only be stretched so far!

    • Lauren Bowling
      September 23, 2014 at 9:22 am

      Definitely. When I lived in NYC and made $45k it definitely did not feel like I could save for retirement.

  • Aldo @ Million Dollar Ninja
    September 22, 2014 at 11:19 am

    I’m also behind because I wasn’t contributing enough. I wasn’t even putting enough money to get the full company match… what a terrible mistake.

    I’ve been ramping it up for the last two years and I’m catching up, but it is a slow process. I’m glad I figured it out on time though. Better late than never.

    • Lauren Bowling
      September 23, 2014 at 9:21 am

      I don’t think I’d have any retirement money saved at all if I hadn’t been contributing to get the match at my last two employers. I think the last sentence of your comment is the key.

  • Kassandra @ More Than Just Money
    September 22, 2014 at 9:56 am

    I’d been contributing to retirement accounts in my late 20s but it was pretty meager. It’s only been the last 2 years since I really dialed up the amounts and started to max out contribution limits…I got a lot of catching up to do!

    • Lauren Bowling
      September 23, 2014 at 9:21 am

      You and me both. BTW- it was great meeting you at FinCon!

  • Charlotte
    September 22, 2014 at 9:36 am

    I contribute to a pension plan but it’s only $2.5k every year. That being said, it has had some pretty great returns (16% last year!) so I’m pretty happy with that. It’s hard because I’m also saving for a condo, travel, etc. and retirement seems so far off haha. I know I’ll be so happy that I started young when time is on my side so I do it any way! Don’t worry, Lauren, it’s never too late to start 🙂

    • Lauren Bowling
      September 23, 2014 at 9:20 am

      Thanks Charlotte! I definitely understand the push-pull of saving for a home/travel vs. retirement.

  • Bridget
    September 22, 2014 at 9:27 am

    I didn’t care about retirement savings at all until recently — but I grudgingly started saving at 25 because it seemed like the right thing to do based on all the PF blogs I was reading haha

    At 28, I’ve managed to sock away a decent amount, a few tens of thousands of dollars ahead of where that infographic says I should be anyway. My goal is to get it to $100,000 by age 33 (I think I might even surpass that!). I think everyone should get to 1x their salary by age 30, but even when I suggested saving $25,000 by age 30 on my blog I got my head bitten off.

    I’ve never saved more than $600/mo for retirement but I made good investment choices, particularly in the last year, and it really helped my portfolio grow.

    • Lauren Bowling
      September 23, 2014 at 9:20 am

      Dang! I think that is very impressive, Bridget! Keep on rocking, while I on the other hand am very jealous and motivated by your success.

      • Bridget
        September 23, 2014 at 4:41 pm

        haha as impressive as it is, it wasn’t all voluntary. My employer had a mandatory retirement plan that took 11% of gross pay — FOR TWO YEARS!! So while it’s really nice to look at the balance now, would I have managed it on my own? Not a chance. I might be at half of where I am now.

        So I’m glad it’s there but I definitely can’t take credit for it. I was forced!! haha

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