Planning for retirement yet? Start saving while you're in your 20s - American Heritage Bank

Have you started planning for your retirement?

It's better to start early rather than wait.

Planning for retirement in your twenties

When you're in your 20s, you have many different financial objectives.

Paying off student loans, saving for a home and starting a family may loom large on your financial horizon, while more distant issues, such as retirement, seem like minuscule dots on a completely different plane of existence.

Waiting to start saving for retirement can reduce your ability to live comfortably during your retirement years.

And because Labor Department statistics show that 10.5 percent more individuals aged 65 through 69 were working in 2010 than in 1990, this is a lesson that can't be learned soon enough.

A little now translates to a lot later

One of the distinct advantages of saving for retirement while you are in your 20s is that it takes very little in the way of contributions to make a very large difference in overall savings.

Small amounts of money saved for long periods of time are able to accrue compounded interest and grow.

For example, let's say you are able to save $100 per month between the ages of 20 and 30.

Your money, placed in an IRA with a fixed investment like a CD, grows at 2 percent and is compounded (meaning the interest earns interest) monthly. By the end of the 10th year, you will have saved a total of $13,406.84. And even if you never save another dime in that account, and if it continues to earn 2 percent interest, it will grow to $24,551.85 in 30 more years.

Maximizing saving opportunities

Opening a Traditional or Roth IRA allows you some flexible tax-deferral or tax-free distribution options.

But IRAs are not the only way to save for retirement. If your employer offers a 401(k) match, then you could effectively give yourself a raise by maximizing the contribution you must make in order to earn the match.

And on top of the free money from your employer, both your contributions and your employer's will grow based on the underlying investments you choose for your account. Making this election when you are in your 20s, when your income is lower than what you can expect to earn in your 30s and beyond, is a great way to help gain a competitive edge in saving for retirement without sacrificing your ability to pay off student loans and start a family.

While you can't control who administers your employer's 401(k) accounts, it's important that you choose the right custodian for your IRA account.

The ability to set up automatic deposits and invest in a variety of assets with varying levels of risk is important.

Give us a call at 918-227-2265, and we can walk you through our retirement planning options and help you determine which type of investment is best for you. Be sure to consult with a tax advisor or accountant about your specific situation.

Source: American Heritage Bank

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