Saving for Retirement in your 20s

Retirement planning in your 20s?! I know this might sound crazy but when I was 18 I was first shown a chart that showed if you start young you can put less in and end up with more! That's all it took for me. I read an article today that reminded me of all the free money you can get with the interest you earn, especially when you start saving when you are young.

The article took the example of wanting $1 million when you retire. If you start at age 20 you just need to put $160 in a month. Then let it sit for 47 years till you are ready to retire and boom! you have only put it $94,000.

Now same goal but you wait till you are 47 and retirement seems like a closer reality and you would have to put in $880 a month eek that is a lot to take out each month and put into just one account. And in the end you would have put in $284,000 (that's 3x what the 20 year old had to do). An example like that is all it took when I was 20.

Then I got my first job for a big corporation and I found out that they matched my contribution up to a certain % that got me really thinking/ acting on saving for retirement. The catch with this matching stuff is that you have to be vested typically to get it. So if the vesting period is 3 years that means you have to work for the company 3 years before they will actually start matching or you have to work 3 years before what they have matched actually becomes yours. So if you plan to stay with the company till/ past the vesting period then you can score even more free money!

Your employer contributing means you could contribute less than the $160 a month like in the example and still end up in the same place or you can contribute that $160 a month and end up with more than $1 million at retirement.

 So why wouldn't you put money into a retirement account like a 401k, IRA, or Roth IRA? Well about a year ago when Brian decided to apply to law school and we found out how much interest we would pay if we took out loans we decided to re route our plans and rather than focus on retirement focus on furthering his education so that we could make/save even more for retirement down the road. Graduate loans are at least 6.8% and only go up from there so we decided that every dollar we put into education would save us a minimum of 6.8% interest (plus if you don't pay off that interest while in school that all gets piled together and you have to pay interest on top of interest), so in reality more than that, so we decided that we would get a bigger better return on avoiding those loans than we would with retirement. But once law school is over and he is working again, our focus will go right back to retirement and making that free money from the good kind of interest!

So obviously there are situations when saving for retirement so young doesn't make sense or when you may not have the money to put in $160 a month. But when it makes sense and when you can find a way to budget to put that money away (some times even pre tax) it only makes sense right?!


So even if you are no longer in your 20s its not too late, the sooner you start the more ahead you will be and the less you will have to contribute to reach your goal! Pay less, get more, need I say more ;)