The Sunday Mail
IT can be far too easy for adults in their 20s to overlook retirement altogether. After all, it is still decades away, with many other shorter-term goals — such as buying a home or paying off student debt — closer on the horizon.
About 66 percent of those between the ages of 18 and 25 say they are not sure they will ever have enough money to be able to retire, according to the recent Prosperity Index Study by Intuit.
Yet, for people in their 20s, it is a powerful time to get started on saving and investing for retirement. With the right moves now, you can harness the power of compound interest and make the most of the decades ahead to set yourself up for success.
Build up emergency savings
It is smart to have an emergency savings fund, especially as most emergencies can cost hundreds of dollars. Before you really start paying down debt, get a handle on that emergency fund. Building an emergency savings first can help you keep your retirement savings untouched should unexpected expenses arise.
You may want to have about six months of your spending needs in an emergency fund in case you lose your job and also look into products where you can earn more for your savings.
Invest with a long horizon in mind
You have four to five decades in your favour. Use the markets for what they are meant for and be fairly aggressive. It can be strategic to allocate your assets in different investments, and your 20s is the time for you to take the most risk as an investor, such as focusing your portfolio on stocks.
If it seems daunting for you, you can stick to target date funds, which are the default investment vehicle for most employer-sponsored accounts.
Take advantage of your human capital
As someone who is in their 20s, you have the highest amount of “human capital”.
Continue educating yourself and refining your skills during your 20s to increase your earnings potential, whether through graduate programmes or certifications.
You have all the time. Increasing your earnings potential is one of the best retirement readiness things as well. Boosting your income will help you keep up with your short-term goals while bulking your retirement savings. Make yourself more marketable now in your 20s, that is really going to pay off in your 40s and 50s.
Get and stay out of debt
If most of your income is funnelled into debt repayment, you might fall behind on saving for retirement. Therefore, the best thing you can do for yourself in your 20s is to stay out of debt, especially from credit cards.
It is so much easier to get started on the other things if you are not starting in a hole. However, if you do have debt, pay extra towards the highest-interest loan when you can, and make the minimum payment on the rest.
If you have student loans, make sure you are in a repayment plan that works the best for you and do not make extra payments until you bulk your emergency savings, experts say.
To keep out of debt, credit cards should be paid off in full, as those are likely to have higher interest rates.
If you let your credit cards get out of hand from living beyond your means, that is the number 1 problem.
Live within your means
It is important to understand where your money is going and get a handle on your budget, experts say.
That way, you can allocate a sustainable amount of your income for retirement.
Would-be investors in their 20s often put off saving for retirement for later on in their lives or when they become higher earners.
This idea tends to fall through as “lifestyle creep” takes over.
Social media comparisons also do not help adults in their 20s. Nearly two in three, or 73 percent, of Gen Zers say social media makes them feel they are tracking behind their life goals while peers seem to be succeeding, the Prosperity Index Study by Intuit found.
Do not be influenced by what you see on social media apps such as Instagram.
If you need to say no to certain things because you cannot afford it, say no.
Laying the groundwork in your 20s is wonderful so that in your 30s, you can really turbocharge your financial goals. — CNBC
