In your 20s, the most important step is getting started –smart habits now will benefit you later. Here are some tips to consider.
1. Start saving
- Enroll in your retirement plan at work and increase your contribution rate over time
- Retirement savings plans offered through your workplace are simple and convenient. The money is automatically withdrawn from your paycheck, allowing you to save, not spend.
- Does your employer fully or partially match your contributions? If they do, contribute at least up to this amount. This is free money you don’t want to pass up.
- Decide on a contribution amount. Many financial planners recommend that you save at least 10% of your yearly income for retirement, starting in your 20s. If 10% is too much, start smaller and increase your contribution rate each year.
- Individual Retirement Accounts (IRAs): Save even more
- Consider opening an IRA or Roth IRA as an additional way to save for retirement.
- Building an emergency fund
- Most experts agree that you should keep between three and six months worth of your living expenses set aside in an easy-to-access “liquid” account, which includes a checking or savings account. The reason you want to have three to six months of expenses saved up is that the most common reason for the need of an emergency fund is due to a sudden loss of income. If you or your spouse loses a job you still have bills to pay and it may take a few months to find suitable new employment. This cushion will help you weather an emergency without dipping into your retirement savings.
2. Watch your spending
- Create a budget
- Keep track of where your money is going and then develop a budget. Creating an action plan will help you continue to budget dollars for retirement.
- Keep debt under control
- For most people, minimizing debt improves their overall financial health. Find the lowest interest rates available and consolidate your debt. Then pay off as much as you can each month.
- As you reduce your debt, consider putting the extra money that’s now available toward retirement and other savings goals.
3. Learn more
- See if you are on track for retirement
- To maintain your pre-retirement lifestyle in retirement, experts say you may need as much as 80% of your pre-retirement income each year you are retired. Check out our Retirement Quick View Calculator. It’s a fast and easy-to-use calculator that helps you determine if you are on track for retirement and how long your savings will last.
Recordkeeping, trustee and/or custody services are provided by Wells Fargo Institutional Retirement and Trust, a business unit of Wells Fargo Bank, N.A. This information is for educational purposes only and does not constitute investment, financial, tax or legal advice. Please contact your investment, financial, tax or legal advisor regarding your specific needs and situation.