When I turned 25, I didn’t think much about retirement. It felt like a distant, almost mythical concept—something reserved for my grandparents who loved reminiscing about the "good old days." My weekends were spent splurging on brunches and traveling to escape the monotony of work. While I thought I was living my best life, a casual chat with my friend Maria flipped the script.
Maria, a numbers-savvy financial analyst, asked me a simple question: “How much money do you think you’ll need when you stop working?” I didn’t have an answer. And like most of us in our 20s, I had never considered how the choices I made now would snowball into my future. That day, I made the decision to start planning for retirement—not as a chore, but as a gift to my future self.
Here’s what I learned and what I want to share with you.
Step 1: Start Small, Start Now
When I first thought about saving for retirement, I felt overwhelmed. Saving for something that’s 40 years away? It seemed absurd. But here’s the golden rule: the earlier you start, the less heavy lifting you’ll have to do later.
Let’s say you start investing $100 a month at age 25 with a 7% annual return. By the time you’re 65, that small habit will grow into nearly $250,000. But if you wait until 35 to start, you’d need to save over $200 a month to hit the same goal. Time is your biggest ally—don’t underestimate it.
Step 2: Understand the Power of Compound Interest
Albert Einstein called compound interest the eighth wonder of the world, and he wasn’t kidding. Compounding means that your money makes money, and that money also starts earning more money.
For example, let’s say you invest $1,000 at 8% annual growth:
- After 1 year: $1,080
- After 5 years: $1,469
- After 20 years: $4,660
When Maria showed me these numbers, I was hooked. This isn’t magic—it’s math, and it works best when you start early.
Step 3: Leverage Retirement Accounts
In the U.S., there are a few key factors to consider:
- 401(k): If your employer offers a 401(k), contribute at least enough to get the full company match (it’s free money!). For example, if your employer matches up to 4% of your salary and you make $50,000 a year, that’s $2,000 you could be leaving on the table annually.
- Roth IRA: This account lets you invest post-tax dollars, so your withdrawals in retirement are tax-free. I opened mine on Maria’s advice and started contributing $100 monthly. Over time, the tax-free growth adds up significantly.
- HSAs (Health Savings Accounts): If you have a high-deductible health plan, consider this triple-tax-advantaged account. It’s a sneaky way to save for both medical expenses and retirement.
Step 4: Budget Without Feeling Deprived
Retirement planning doesn’t mean saying goodbye to all the fun stuff. I didn’t give up my travel or weekend brunches; I just budgeted better. Here’s how I did it:
- The 50/30/20 Rule: Allocate 50% of your income to needs, 30% to wants, and 20% to savings. I made retirement savings a “non-negotiable” part of the 20%.
- Automate Your Savings: My Roth IRA contributions are automatic, so I don’t have to think about it. Out of sight, out of mind, but the balance keeps growing.
- Use Found Money: Bonuses, tax refunds, or side-hustle income? Funnel a portion into your retirement account.
Step 5: Invest Wisely
Don’t let the stock market intimidate you. Start simple:
- Index Funds: These are low-cost funds that track a market index, like the S&P 500. I chose one for my Roth IRA because they’re diversified and cost-effective.
- Target-Date Funds: These adjust your portfolio as you age, shifting from riskier investments to safer ones closer to retirement.
Remember, investing is about the long game. Markets will fluctuate, but staying consistent is key.
Step 6: Learn and Adjust as You Go
No one gets it perfect from day one, and that’s okay. I didn’t start with a lot of knowledge, but I made it a point to learn:
- I read books like The Simple Path to Wealth by JL Collins.
- I followed financial YouTubers and podcasts for bite-sized advice.
- I asked questions, whether to my friend Maria or through financial forums.
Step 7: Think Beyond Just Money
Retirement isn’t just about having a big pile of cash. It’s about what that money allows you to do—whether that’s traveling, spending time with family, or pursuing hobbies. Visualizing your dream life in retirement makes the process feel more tangible and motivating.
Your Turn: Start Today!
If you’ve made it this far, congratulations—you’re already ahead of most of your peers. Planning for retirement in your 20s might seem ambitious, but it’s one of the smartest decisions you’ll ever make.
Take five minutes today to calculate how much you might need in retirement. Try tools like a retirement calculator or set up a consultation with a financial advisor.
Final Thoughts: Future You Will Thank You
It’s been five years since I started my retirement journey. My nest egg isn’t massive yet, but it’s growing steadily. I’ve built habits and a mindset that will carry me through life. Most importantly, I’ve bought peace of mind.
So, here’s my advice: Don’t wait for “someday” to start saving for retirement. That “someday” begins today, with the choices you make in your 20s. Trust me—your future self will thank you.