Most people dream of retiring one day, so that they can spend the rest of their days focusing on things they are passionate about, or simply focus on relaxing and enjoying time with loved ones. However, a lot of people have a bleak view about whether they will be able to retire, or if they will be able to do it as early as they would like.
For some, it feels like an impossible task to accomplish in an economy with fairly stagnant wages. Don’t fret, though! The economy will take care of itself, and there are steps you can take to help secure your retirement if you start thinking about them, early on. Here are some things that you can do in your 20s to prepare for retirement…
It’s never too early to start investing
First thing is first, don’t let anybody tell you that it is too early to start investing. Investments are how you make your money grow itself to a sizeable amount that allows you to reach retirement, earlier. It’s also important to build a portfolio now and learn how much it grows, over the years, since your retirement portfolio is how you are going to generate money during retirement, indefinitely. To take your first step into investing, check out some useful apps, such as Betterment, that will manage your portfolio for you with relatively little action on your part, and watch your returns grow.
Only save for contingency
This might seem counterintuitive to a lot of what we’ve been taught, over the years, but saving money in a savings account is fairly foolish, right now. Yes, it is important to have a savings for emergencies, and a financially wise person should always have between 3-6 months of expenses saved up, just in case, but savings accounts actually lose you money.
The reason for this is that Federal interest rates are so low right now, that you don’t make any money by keeping your cash in a savings account. In the meantime, inflation causes your money to be worth less and less every year, which means your savings will be worth less when you retire than when you put it in there. Investing your money enables you to outpace inflation and actually grow your net worth.
Cut down living expenses, early
When people in their 20s start to make a more respectable income, they often get too excited and fill up their means with new expenses. A nicer car and a fancier apartment might seem worth it right now, but they are going to eat into your capital, over time, and make it harder to save and invest. For that reason, always keep a budget on hand that shows you how much you are spending on living expenses, and look for ways to cut down on things like rent or food costs. We’re not saying that you need to live like a nun, but being pennywise right now will pay off in higher dividends, later.
Make the most of your 401(k)
The tool that most people have used for decades to get closer to retirement is their 401(k), which is a retirement savings plan that employers sponsor for their employees. When you are looking for a job, one benefit that you might want to look for is a business that will match what their employees put into their 401(k), which makes it much stronger and more substantial. Still, don’t always assume that your 401(k) will be enough to retire on, and take investment steps outside of that to grow your portfolio.
Get rid of debt as soon as you can
One of the biggest threats to your retirement is debt. Interest rates on debt can bog you down for years, especially if you are only making the minimum payments every month. You can end up spending tens of thousands more dollars than you needed to on home and car payments, due to interest rates. For this reason, avoid going into debt whenever you can, and always make it a mad dash to pay that debt off before the interest rates start to cut further into your earnings.