Retirement Planning If You’re Under 30

Hey, you know what sucks? Being under 30.

I’m not saying that from personal experience — I’ll be 30 in myself in just a few months, and I’ve enjoyed my 20s just fine, thank you. But if you read any personal finance news or advice, being a 20-something is apparently the worst — we’re saddled with student loans, burdened by a tepid job market, sinking in quicksandy credit card debt, supposedly spending our money wrong, having trouble getting health insurance, and, oh yeah — supposed to be saving as much as possible for retirement as quickly as possible.

Well, that sounds easy! And fun, too!

The reality is that, while people harp at us to start saving for retirement early, it’s not always possible — or the best financial move. However, there are ways to start putting away for the future now — and not feel like a total miser while you’re doing it.

1. Get a Sense of What You Need to Retire (but Don’t Freak Out)

It’s hard to work towards a goal if you don’t have a concrete idea of exactly what you’re trying to achieve — knowing the specifics of the goal makes it real and enables you to plan the concrete steps you need to take to achieve it.

To get a better picture of your retirement future, take a look at this Retirement Workbook — it can help you better understand your situation and make a specific plan.

Remember, though — don’t get nervous when calculating those numbers. While retirement planning is important, it’s also a long-term project, and not something you need to do all at once. 

2. Deal With the Most Important Things First

Before you start saving for retirement, you should ensure that you have fairly solid financial footing — saving for later in life will do you little good if there are things wreaking havoc with your finances right now.

First, build an emergency fund — $1,000 is a good goal to start with. Most emergency situations — car trouble, unexpected job loss, even a medical bill — can be handled with $1,000. Eventually you want to have at least one month’s worth of expenses saved up. Many experts recommend having three to six month’s worth of expenses saved, and I think that’s a great goal — but I also know from personal experience that it can be VERY hard for someone just starting in their career to even think about having that much money. So don’t worry about that (yet).

After you have a little bit of an emergency fund, focus next on your high-interest debt, such as credit card debt or private student loan debt (which often carries a higher interest rate than federal student loans). These debts can eat up thousands of dollars over the life of the loan, and if you look at the comparatively low interest rates currently available for savings and investments, it makes much more sense to pay off these debts before you put money away for retirement. Our writer Philip Brewer has more thoughts about why it’s better to wait to save.

But you shouldn’t wait forever. Which brings us to…

3. Contribute to Your 401(k)

If you work at a job that offers a 401(k) or a similar plan like a 403(b), you should begin contributing — even if it’s only a tiny amount, and even if you don’t think you’ll be at the job long enough or aren’t old enough to get a matching contribution from your employer.

There are a few reasons why you should do this. First of all, these contributions are taken directly from your paycheck, and since the money is deducted automatically, you probably won’t even realize that it’s gone. Secondly, there’s always the chance that you’ll stay at the job longer than you think — long enough for your company to start matching your contributions, basically giving you free money.

The third reason — and this is the reason why people will harp at you to start saving as soon as possible — is that the sooner you start saving, the longer you have compound interest working in your favor. That’s why it’s the first suggestion in this list of tips for planning your retirement from CNNMoney — saving early can give you a huge boost in the long-term.

Personally, I ignored the 401(k) and 403(b) at my first two jobs, annoyed that they wouldn’t match my contributions until I had been there at least a year — or, in one case, until I turned 25. But I definitely regret that decision — if I had contributed some of my own money, I’d have a much bigger nest egg today.

4. If You Don’t Have Access to a Plan at Work, Open a Traditional IRA or Roth IRA

These two popular retirement savings plans each have their advantages. As the aforementioned CNNMoney article puts it:

…a traditional IRA offers tax-deferred growth, meaning you pay taxes on your investment gains only when you make withdrawals, and, if you qualify, your contributions may be deductible; a Roth IRA, by contrast, doesn't allow for deductible contributions but offers tax-free growth, meaning you owe no tax when you make withdrawals.

Basically, contributing to a traditional IRA can help you pay less (or get more back!) when you file your annual taxes, but you can’t make a withdrawal before retirement age without paying a penalty. With a Roth IRA, you don’t get the same annual tax benefits, but you can make early withdrawls.

For this reason, I think the Roth IRA is especially good for people in their 20s. While I definitely don’t advocate dipping into your retirement savings — what good is it if you don’t actually use it to, uh, save for retirement? — it is nice to know that you can access that money without penalty if you absolutely need to. A couple of years ago, I was in a tough situation where I needed a car — and withdrawing some money from my Roth IRA is ultimately what made it happen.

The key, as with the 401(k), is that you don’t need to contribute a lot — anything can help. Consider saving your change, depositing it at the bank periodically, and putting that in your IRA. Or, if someone buys you a drink or a meal you were expecting to pay for yourself, put that money aside for retirement savings. Put half of your birthday money in the IRA. The important thing is to make these deposits when you can, even if they’re small.

5. Don’t Stress

Retirement planning is one of the most long-term things you will ever do in your life. And, while starting early has huge benefits, the long-term nature also means you have time to be patient, take care of more-pressing financial matters first, and spend your 20s saving for the long-term, yeah — but also having fun.

Are you under 30? Have you started planning for retirement? Share your thoughts in the comments.

This article was made possible by the support and inspiration from Genworth Financial, a S&P 500 insurance company with more than $100 billion in assets. Check out Genworth's Retirement Income Worksheet to plan for the life you want in retirement.