Is it ever too early to start saving for retirement?

By  Karen Banes

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You’ve probably heard that it’s never too early to start saving for retirement, but is that really true? Should we really be focussed on retirement planning in our early 20s? Should the very beginning of our working life be when we start planning for the end of it?

The answer, like the answers to many personal finance questions, isn’t as clear-cut as it seems. Yes, planning for retirement from an early age is a good idea. But it also contradicts another important piece of personal finance advice: Prioritize paying off debt over saving, especially if that debt comes with a high interest rate.

Many 20-somethings are carrying a lot of debt. They have student loans, auto loans and credit card debt. So is saving for retirement really something they should prioritise?

Should I pay off my debt before I start saving for retirement?

Many experts advise that you pay off debt before saving for retirement, especially high interest loans such as credit card debt. Some also advise prioritising lower interest debt, such as student loans, over retirement as well. As Michelle Singletary states in this Washington Post article,

“I recommend that people focus intensely on paying off their student loans before aggressively saving for retirement.”

There are other things to consider though, like interest rates, employer contributions, and compound interest. If interest rates on your loans are low, you may occasionally find you can get a higher rate on your retirement savings. If your employer matches your contributions to your 401(k), or similar, you’ll want to take advantage of that. And we all know that compound interest makes a real impact over time.

So while it’s generally good advice to eliminate debt first, then save, life is of course more complicated than that.

Why you should save for retirement in your 20s and 30s

Because you can. You may feel that you have a lot of outgoings when you’re young, but that’s not necessarily true. You potentially have more disposable income than you will when you have a family, a mortgage, and other mid-life expenses. And money shored away now will keep earning returns as you go through those expensive, mid-life, family-raising years.

Compound interest. Building your retirement savings young allows you to benefit from compound interest over many more years than if you started in mid-life. As you’re probably aware, compound interest is simply interest on interest, but when you start saving young, it has a huge impact on your funds by retirement age. To keep the math simple, a lump sum of $10,000 invested for 20 years at 10% will top out at exactly $30,000 (with no compounding). Add compound interest, however, and you’re looking at over $70,000.

Money discipline. Saving for retirement can encourage good money discipline, and guard against lifestyle inflation. You’ve probably noticed, no matter how much you earn, the amount you spend tends to creep up to match it. We just have a natural tendency to match our outgoings to our income, but only the income that lands in our bank account. By saving for retirement directly out of your pay check, that natural spending creep is based on your after-savings income.

How should you save for retirement in your 20s and 30s?

Where you put the money you save for retirement is up to you, and you should definitely take professional advice on it, but here are a few possibilities.

An employer matched pension scheme. If your employer runs a 401(k) or the equivalent in the country you live in, take advantage of it. it often (though not always) means they will match your contributions. If they do, pay the maximum you can afford, and preferably the maximum your employer will match. Doing this from a young age means you’ll really benefit from those employer contributions. In many regions, you’ll also gain a tax advantage as you won’t pay tax until you withdraw those funds for retirement.

An unmatched retirement-specific account. This includes options such as a Roth IRA. This is another popular option for retirement saving, especially if your employer doesn’t offer a matched 401(k), or you’re self-employed. You won’t gain the immediate tax benefits of a tax-free retirement plan, as you’ll usually pay into it from your after-tax income. However, with many of these types of accounts, you won’t pay tax when you draw down your retirement funds. Check on this when you open your account, though.

Property, stocks, or other investments. Depending on your own skills and interests, you have a wide range of options. If you don’t have an employer who matches your retirement savings, you’re free to make your own decisions on how to invest any money you can set aside. We have plenty of investment advice you may want to check out here at Wealthtender.

The most important thing is to make a plan and set aside your retirement savings first, with every pay check, whether you’re employed or self-employed. Remember one of the most important rules when it comes to saving. Save first, and spend what you have left, rather than spending first and saving what you have left.

This article is intended for informational purposes only, and should not replace professional financial advice tailored to your circumstances. You should consult a financial professional before making any major financial decisions.

Karen Banes

About the Author

Karen Banes

I’m a freelance writer specializing in online business, personal finance, travel and lifestyle. I also work as a content creator for hire, helping brands and businesses tell their stories, grow their audiences, and reach their ideal customers. I’ve lived, worked and studied in six countries, across three continents. Stop by my blog to learn how to run your own (very) small business on your own terms. You can also connect with me at my website or follow me on

Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.

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