Okay, we’ll readily admit that most people in their 20s aren’t exactly focusing on retirement. Most are busy finishing up college or settling into their new career. Heck, there are quite a few that haven’t even chosen a career yet and are still kind of bouncing around, trying to figure out what they’re going to do and who they’re going to be.
That being said, we still believe that it’s never too early to start planning for retirement. Frankly, if you have any hopes of retiring by 55 or 60 years old that means you have approximately 40 years to fund a retirement nest egg that will have to keep you going for another 20 years or longer. The earlier you get started the earlier you can retire and in a higher style. With that in mind we hope you enjoy our blog on retirement tips for people in their 20s.(Some of us even wish we could go back and start over, right where you are right now, and fix some of the mistakes that we made.) Enjoy.
According to MFS Investment Management, almost 40% of young adults in their 20s confess that they don’t feel confident investing in stocks. Our take on this is simple; don’t be too cocky but definitely don’t avoid the stock market. The reason is because, since 1926, there is never been a 20 year period where a stock-heavy portfolio has lost money and on average the gain has been nearly 11% per year as compared to 4% for bonds.
We also recommend a Roth 401(k) because of the after-tax dollar savings advantage that they give over a regular 401(k). If you’re going to be in a higher tax bracket come retirement, which most young investors will be, not paying income tax on your withdrawals is going to be a great deal. We also recommend that if you’d like to hedge your bets on any future tax rates you should split your retirement contributions between your Roth IRA and a pretax 401(k).
This one is very key; avoid the urge to cash out your 401(k) when you leave a job. Frankly, after penalties and taxes you’re going to get practically 30% less than what you put in which is bad enough. You’ll also, on a $10,000 balance, lose approximately $100,000 by the time you retire. That’s a fine example of what compound interest can do and what you can lose if you don’t take advantage of it.Our strong suggestion; roll that over into a new IRA with your new employer.
While this might not have anything to do with your retirement savings per se, the best time to open a business on your own (if you’re the entrepreneurial type of course) is during your 20s. The reason, in most cases, is simple; you have many less factors that can weigh you down financially including a mortgage, several cars and 2.5 (or more) kids.
If you’re not investing in your company’s IRA or 401(k) because you still don’t actually work for a company that has one we would suggest that you keep searching until you find one that does and then make the switch. As far as doing so, these days there is so much opportunity online to let people know who you are and what you can do that you’d be crazy not to take advantage of it. LinkedIn is the king of course but there’s also Facebook and many other social media websites that can help you reach out to basically the world and let them know you’re available and what you have to offer.
One last bit of advice today and we’re done. According to recent research any professional who is not involved in negotiating their first salary and leaves it up to their new employer stands to lose nearly $500,000 between their 20s and age 60. What that means is that you need to swallow hard and put money on the table when you’re negotiating for your first big position. Going in armed with information that you’ve culled from your peers and also, if possible, people who work at the company you wish to work for, is an excellent idea and will give you an idea of where to start, dollar-wise.
As we said at the outset of this blog we realize that 20-omethings aren’t exactly focused on their retirement in any way, shape or form. What will say once again also is that they should be. The better prepared you are in the better plan should make for retirement the better your ‘golden years’ will be, at least financially. We hope this blog had some interesting and educational information that you can use and we invite you to come back and join us again soon for more of the same. Take care until then.