Saving in Your 20s to Have More Security for Your 30s and 40s

In your 20’s and don’t think that you need to worry about your security later on down the line? There’s no need to worry about making yourself secure for once you reach your 30’s and 40’s, right? That’s probably the mentality of most people who are twenty-something. Most are in college or are just having fun and enjoying life. They probably believe that there’s no need to save money until they hit their 30’s or 40’s. But if you want to have more than the average retired person, then it would probably be wise to start saving before you hit the age of thirty-something.

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You might want to consider this idea: if you begin saving say around $1,500 a year, beginning at the age of say, 25 years old, and you save this for 40 years, by the time you retire you would have $600,000 saved to tack onto your retirement pay. If you wait until you are 40 years old, you would only have $375,000 by the time of retirement. That’s a whopping $225,000 difference.

It’s important that someone in their 20’s doesn’t get into the habit of using the excuse that they have to pay off this loan, pay for rent, etc. Once they get use to using this excuse, the idea of saving fades faster and faster. The best way for someone to get a foot hold on saving would be to make sure to see if the company that they work for offers some sort of 401K program. Even if you can’t afford a lot of money to be placed in one of these investment plans, any amount will get you started on your way and eventually you’ll be able to increase the amount that you put in, once you have learned how to live differently depending upon your savings.

The two best things about a 401K plan is that not only do some employers match what the employee puts in, but also the turn around on the investment is far quicker than the interest you would get on a typical savings account. With a 401K plan, your employer will match up to about 3% of your income and the money is money that is taken from your salary before you are taxed by the government.

If it happens that the employer that you work for doesn’t offer any type of 401K investment plan, you might want to consider investing your money in a Roth IRA. How you fund these is through money that has already been taxed through your regular paycheck. So when you want to withdraw it at a later date it will be tax-exempt. You can put in as much of your salary as you want, up to $5,000. The Roth IRA can offer a potential to earn much higher return on your investment.

Although the thought of saving at such a young age may seem impossible, it would benefit all those twenty-something’s out there to stop and take time out to figure out some sort of savings/investment plan for the future. By the time they reach their 30’s and 40’s it will be second nature to save and will lead to a far less stressful life.

About the Author

By , on Jan 7, 2010
Craig Kessler
Craig Kessler is the marketing director of BudgetPulse. He manages and writes on the BudgetPulse Blog. Please visit BudgetPulse to learn more about the personal budgeting software.

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Leave Your Comment (16 Comments)

  1. jerry says:

    great advice i just started a joint account wih my wife, we are actually ready to start our savings for out retirement..8) thanks for the advice josh

  2. Nick says:

    Jenn, you are exactly right, giving up a little bit at a young age is very worth it! It’s also an awesome idea to make the deductions automatic from your account, that way you don’t have to make the choice!

  3. Craig says:

    @Tyler You are right, and I guess trying to be optimistic, ha. 8% is a bit more realistic but regardless of what actually may happen with the compound interest, the idea alone of saving in your 20’s still applies.

  4. Craig says:

    @Justin To be honest I don’t know enough about it to give sound advice on that situation. I like to keep things simple and to me it seems like it could be a hassle unless the benefits really make sense. Do some research on it first, but I don’t see why you don’t just continue to max out your Roth IRA as soon as possible.

  5. Tyler says:

    Yes, compound interest is present, however, Craig’s calculation is assuming a 9.3% ROI each year which is highly unlikely.

    8% year over year is more plausible and would yield about $420,000 at the end of 40 years.

  6. Jenn says:

    Uh Josh, there is such a thing as compound interest. . . .

  7. Josh says:

    Maybe it’s because I just woke up but to me this math does not work out so well. Since when does saving $1500 a year for 40 years = $600,000???

    Somebody doesn’t know how to do simple math yet they are handing out financial advice. Sheesh.

  8. Justin says:

    Craig – what are your thoughts on the recent IRA conversion changes? I am 27, single and have been putting the maximum into a Roth IRA for the past few years. In 2009 my AGI is above the Roth IRA limit. I do not currently have a traditional IRA. Can I open a traditional IRA, contribute $5,000 for tax year 2009, and then convert that $5,000 straight to my existing Roth IRA?

  9. Craig says:

    @Genna I completely agree, it really helps out setting up automatic transfers. I don’t have a 401k but set up transfer each month to my IRA account for the reasons you mentioned. Just makes it easier if you never see it.

  10. Great post Craig!
    One thing I would add is that many people would make a great start if when they start their first job or a new job they sign up for automatic deposit, have the 401K taken out immediately and then have another amount drafted directly into a separate savings account. Most people will find a way to spend all they get in their paycheck. It is hard to live paycheck to paycheck when you are starting out, but most people would still find a way to spend their salary and live paycheck to paycheck if they had that additional couple hundred dollars! Plus, it creates a habit to save and a habit to live on less than you make. Those are great habits to have in your 30s when you’ve you a spouse and kids!

  11. Craig says:

    @Mary Not only will taxes be higher in the future but its nice to know exactly what money you have in your account instead of trying to figure out what it will be once taxes are removed. Makes it less stressful in my opinion.

  12. MaryB527 says:

    Great post! I’m constantly telling my friends to look into if their employers offer a 401(k) plan or not and explaining the difference b/t regular IRAs and Roth IRAs. It’s important to explain that a Roth IRA is good while you’re young b/c of the high probablilty that your tax bracket (and quite probably tax rates) will be much higher by the time we’ll get around to pulling these funds out in the future.

  13. Craig says:

    @Griff Agree, I have read so much about starting early and how even 1 year could make a big difference that I finally took everyone’s advice and went to start my own IRA.

  14. Griff says:

    Great post. I agree that it is super important to get started saving and investing early. All of the studies I have read about show how a person can earn so much more investing little amounts on a regular basis early than one big amount later on. I have recently gotten started with my roth IRA for both my wife and I. Excited to see it grow!

    Keep up the good posts!

  15. Craig says:

    @Jenn Agreed, from the advice from everyone I have been talking to, it really got me motivated to try to save in my 20’s now that I’m getting started. Wish I had more income to put towards savings but like you, only have car loan so have been trying my best to put money in IRA, money market, and investing fund.

  16. Jenn says:

    Great article! I have always felt that the financial security that I feel now in my late 30’s is because of choices i made in my 20’s. Unlike many of my peers at the time, I didn’t go into debt in my 20’s (other than a car loan) and started my IRA, a DRIP and a money market. When Hubs & I decided to get married we started a joint account and set up automatic deposits from our salaries into it to save money for the wedding. All of those decisions meant giving up on a few things at the time, but have put us in a great position now.

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