The Best Time to Think About Retirement Is Definitely When You’re Young

The young aren’t thinking about retirement, and who can blame them? It seems a long way off. Anything could happen between now and then. In the meantime there is (often expensive) fun to be had, and student debt to pay off. After that there are (maybe) homes to buy, weddings to pay for and families to start.

But retirement can be so much cheaper if you think about it from a young age. And some young people really do recognize that. Just lately, I’ve heard a couple of recent high school graduates (yes that’s 18-year-olds) weighing up their entry level job offers focused at least partially on pension benefits.

They’re the smart ones, because you know what? Anything really can happen between 18 and retirement age, which is exactly why it can be a very good thing to load your pension pot at the front-end of your career.

Why Start Saving for Retirement in Your 20s?

The simple answer to this one is – compound interest.

Let’s make the math really simple.

Let’s just assume for now that you start work at 18 and can afford to invest $2,000 a year starting at age 19. Let’s say you save that much every year until you’re 27 then stop saving (maybe you go freelance, or become a stay-at-home parent). You don’t save anything after that, but your investments are yielding an average (over the next few decades) of 10% per annum. Given that very specific scenario you’d have over $1 million in investments by the time you’re 65.

Then let’s say you wait until 35 to start saving that $2,000 a year. Even if you save it consistently for the rest of your working life, and access that same 10% return, you’d end up with closer to $400,000 by age 65.

Obviously these figures are hypothetical, but you can use an online compound interest calculator to play around with your own figures and see how things pan out.

How Do I Start Saving for Retirement in My 20s?

This will depend on your circumstances. If you have student loans to pay back and other forms of debt, and maybe a mortgage, saving for retirement might seem a low priority. But it’s definitely worth doing.

Check out your how your employer’s pension scheme works, if you have one, and if they match your contributions. If they do it’s worth paying in as much as you can afford, right up to the limit allowed by your employer if you can manage it.

While you might need to take advice on this if your financial situation is complicated, it generally makes sense to pay as much as you can into a matched retirement plan, such as a 401k. This applies even if you’re also trying to pay down debt.

Dealing with debt is usually a top priority, due to the high interest rates you might be incurring, but obviously an employer matching your contributions dollar-for-dollar represents a 100% return on that money. So it can make sense to save for retirement alongside paying off debt.

Self-employed? Then saving for retirement will be more complex, but just as important, and you have a lot of the same options as employed people when it comes to retirement planning. You can even contribute to a one-participant 401k, but obviously it will be your responsibility to set it all up.

Ultimately saving for retirement may not be something you care about when you get your first, low-paid, entry level job. But starting while you’re young could make all the difference to that final pension pot, and even to how you’re able to live your life along the way.

Need support along the way? Consider speaking to a financial advisor. They might spot ways for you to maximize your retirement earnings based on your specific circumstances.

Karen Banes is a freelance writer specializing in entrepreneurship, parenting and lifestyle. She writes articles, website content, ebooks and the occasional award winning short story. Her work has appeared in a range of publications both online and off, including The Washington Post, Life Info Magazine, Transitions Abroad, Brave New Traveler, Natural Parenting Group, and Copia Magazine. Learn More About Karen