How to Plan for Your Retirement in Your 20s

How to Plan for Your Retirement in Your 20s

young adults

If you’re in your 20s, retirement planning is probably No. 2,515 on your priority list, sandwiched between learning how to build a lawn mower and discovering a planet. However, you’ll hear a lot of people in their 50s and 60s say the same thing:

“I wish I’d planned better for my retirement when I was young.”

It’s not just finances, either, that trip people up later in life when simply walking and maintaining balance is hard enough without the additional mental and material stress of retirement anxiety. Here are things to do in your 20s that will make you physically and financially sounder as retirement nears—when those issues will surely be at the top of your priority list.

Financial planning

The best thing you can do in your 20s is to develop a relationship with a capable, trustworthy, and likeable professional financial planner. You may not have a lot of money to invest or save right now, but when you do, you’ll need help making the right decisions because there are hundreds of options—and it can get very, very complicated.

Many young people take financial advice from parents, a rich uncle, a successful colleague, or other well-meaning friends and connections. But this is a dangerous approach. People such as these have the best intentions, but what worked for them may not work for you. There are lots of things to consider in terms of risk tolerance, tax implications, and more. A professional knows how to systematically analyze the variables, and build a short- and long-term financial plan that’s sensible for you, not Uncle Nigel.

RELATED: 3 Investment Strategies to Grow Your Retirement Savings

Get to know a pro. Vet candidates carefully. When you find a few who seem capable, trustworthy, and likeable, let them know the details of your current finances and what you expect to be earning over the next few years. Then ask a simple question: “What would you do if you were in my shoes?” The answer you like best is going to be from the individual who is the best choice for you.   

Estate planning

Connected to financial planning is estate planning. Estate planning deals with the issues of how to protect your assets once you accumulate them, and also how to pass on your wealth when you die. An estate plan will change continually over the years as your assets and family members change. But again, it is helpful to establish a relationship with an estate planning professional when you’re in your 20s, especially if you have a spouse and/or children.

When it comes to financial and estate planning, you probably have immediate as well as long-term issues to consider. For instance:

  • Should I contribute to my 401(k)? If so, how much? You may be surprised at how even small amounts invested now mushroom over the course of several decades.
  • Do I need a will?
  • Do I need life insurance? If so, how much and who should the beneficiaries be?
  • Should I buy or lease a car?
  • Should I buy or rent a house?
  • What’s the best way to handle health insurance?

Scores of questions like these come up every year. If you improve your decisions, the value adds up over the years in a big way.

Lifestyle and career issues

Of course, money is only part of a happy retirement—it means everything if you can enjoy the material things you have accumulated. It seems to me that people in their 20s have a better appreciation of this than us boomers did; the importance of work-life balance wasn’t a pressing issue for many people in my generation who were just happy to have a job.

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