I wish I had thought about retirement when I was still in my 20s. Fresh out of law school, full of my own potential, it never occurred to me that I would regret putting little into savings. For me, as for many 20-somethings, a 401(k) was an abstract concept, something my parents discussed over supper while I tuned out the conversation.
The reality, however, is that it’s never too early to start retirement investment planning. This is especially true for women, who are taking a much stronger role in the workforce than they have in previous generations.
Ask Your Folks
For many people in their 20s, parents are an invaluable resource. Rather than starting retirement investment planning on your own, ask your parents for their help. Pick their brains about how the process works, and be honest about your financial situation.
Then, armed with your parents’ tips, research retirement investment planning on your own. Compare what your folks said against what you read on the Internet and in magazines. Become a sponge for all topics financial so you’ll be able to make the most informed decisions possible.
Permit Paycheck Deductions
You can’t miss money you never had. If your employer allows you to contribute a portion of your salary to a 401(k) (and particularly if your employer matches those contributions), go ahead and do it. Get in the habit now and after a while, you’ll forget that extra 3 to 6 percent that goes directly into your retirement account.
For self-employed professionals in their 20s, suggests MSN.com, set up a Roth IRA account instead of a 401(k). The advantage here is that the money you put into an IRA has already been taxed, so it’ll be tax-free upon withdrawal in retirement.
Beware Risky Investments
Financiers often claim that risk tolerance should be much higher for people in their 20s, and should decrease as people get older. This is often the case, but every person is different. If you aren’t comfortable with risky investments, don’t make them.
Part of the problem with risky investments in your 20s is that you don’t have the experience or the frame of reference necessary to make informed investment decisions. You might stand to lose less in your 20s, but this is about retirement investment planning-not striking it rich.
Sticking with mid- to low-risk investments will provide a healthier landscape for your financial future. You’ll continue to put away money for retirement rather than risk blowing it all before you hit your 30s.
Keep Separate Savings
While retirement investment planning is important in your 20s, it isn’t the only financial consideration. You also need to be putting money away for emergencies, such as medical expenses or major car repairs, as well as fun expenses, like travel . Don’t deprive yourself of the necessities or of entertainment in the name of retirement savings.
Put away a small amount of money each month for entertainment, a larger amount for personal savings, and another segment of your income for debts, such as student loans. It can be tough when you’re just starting out in your 20s, but keep in mind that your salary will increase and you’ll continue to adjust amounts as needed.
Avoid Real Estate
Real estate is not the best retirement investment strategy when you’re in your 20s. The market is too unpredictable and requires an experienced hand. If you’re looking for a more volatile investment strategy that will pay off over the next forty years, go with equities. But make sure you have a solid financial adviser to help you make decisions.