When it comes to saving for retirement, time can be our biggest ally, or worst enemy. For workers in their 20s, it's often both.
Setting aside money for their golden years doesn't rank high on a list of priorities for many twentysomethings. At that age, it's easy to conclude retirement planning can be put off until one earns a better living.
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Workers 25-34 today are less likely to save for retirement than employees 10 years ago, according to a survey earlier this year by the nonprofit Employee Benefit Research Institute. And 60 percent reported they had less than $10,000 set aside for retirement, not including retirement benefit plans.
Retirement savings often take a back seat to paying student loans and other expenses.
Yet workers who begin building a nest egg in their 20s can ultimately end up saving more with less financial pain than those who get started later.
"What young people and many people don't realize is the power of compound growth means if you begin saving sooner, the easier it is," said Carrie Schwab-Pomerantz, senior vice president at Charles Schwab & Co.
Here are some tips for workers in their 20s:
1. Start early
The sooner you start saving, the greater your potential balance when you retire. Financial experts stress that everyone in their 20s should find a way to save some of their earnings for retirement.
Schwab recommends you set aside 10 percent to 15 percent of your pretax annual income. If you start early, that level of contribution can probably suffice until you retire.
"If you do that, you should have a relatively comfortable retirement," said Schwab-Pomerantz.
Put it off until your 30s, and then you'll have to save 15 percent to 20 percent annually. Wait until your 40s, and the recommendation jumps to 25 percent to 35 percent.
Online retirement savings calculators can help you get a sense of how much you need to save.
The Social Security website also has tool that will show you how much you can expect from Social Security.
2. Embrace investing
Despite the severe downturn in the 2008 financial crisis, investing in the stock market remains the best long-term play to generate the most return on your money.
"If you're 20, 25, or even 35, you still have 25 to 35 years to ride out the highs and lows of any investment," said Lyssa Thaden, manager of partner education at American Student Assistance, a nonprofit agency that caters to college students and graduates.
For young investors, the easiest approach is to invest through an employer-sponsored retirement plan like a 401(k). The money is taken out of your paycheck on a pretax basis and invested in stocks and other assets by a fund manager. You can withdraw the funds at 59 ½ without penalty.
If your employer offers a matching contribution, make sure you contribute at least enough to get the full matching benefit.
No access to a 401(k)? Consider opening a Roth IRA account. Your contributions will be taxed upfront, but in your 20s you'll likely be in a low tax bracket. When you withdraw funds after you turn 59 ½, the funds and gains earned along the way are tax-free.
And if you invest, resist the temptation to cash out before you retire, or you'll pay hefty tax penalties.
3. Save automatically
If investing is not an option right now, try setting aside some money, even if it's just $20 a paycheck, into a savings account. Arrange for the funds to be deposited automatically, so you'll be less likely to spend it.
4. Stick to a budget
Success in reaching any saving goal requires living within one's means. That may require tracking your expenses and then making and sticking to a budget.
Although saving for retirement is important, experts say it shouldn't take precedence over building up an emergency fund of three to six months.
Even if you think you can't afford to save, a budget can help flag excess spending. The key is to include retirement saving into your budget, said Thaden.
Check out Northwestern Mutual's online budget work sheet and saving tools: www.Themintgrad.org/try-it/.
5. Keep debt manageable
Carrying high-interest credit card debt can derail you from your financial goals, including saving for retirement. Avoid doing so and make a priority of paying down credit card debt.
If you're saddled with hefty student loan payments, look into income-based repayment plans, which may help lighten your burden.
6. Save on living expenses
When you're younger, you may be more willing to split housing with a roommate or even live at home with your parents. You may not have much privacy, but lower housing costs can enable you pay down debt, save money and put you in position to begin building your nest egg.