Saving Early for Your Retirement

In your 20s, retirement is a bit like global warming. You know the day of reckoning will come, but it’s still decades away. But those years have a way of creeping up on you. Better to develop good saving habits now than to be staring down the barrel of 50 with just your collection of iTunes and Crocs in 20 colors as the sum total of your net worth.

“If you’re just going to rely on the government to fund your retirement, you’re going to be dirt poor,” says Brian T. Jones, a financial planner and author of Getting Started: The Financial Guide for a Younger Generation.

Not only that, but by the time today’s crop of 20-somethings retire, government sources of funding will be stretched even thinner than they already are. There’s renewed talk of raising the retirement age for Social Security, means-testing for eligibility, and benefit cuts. And don’t rely on your employer either, since a majority of them no longer offer pensions.

“You would suspect that people would be saving at higher rates because of all these changes, but they’re not,” says Andrew Eschruth, associate director for external relations with the Center for Retirement Research at Boston College.

In fact, according to Hewitt Associates, a benefits consulting firm in Lincolnshire, Illinois, while 74% of those who are eligible to participate in a company-sponsored retirement plan do so, just 54% of people in their 20s do.

The good news is that when you’re young, you’ve got a powerful asset on your side: time. If at age 25 you invested for 10 years and stopped, at 65 you’d have about the same amount as someone who started investing at 35 and continued to do so for the next 30 years. “People think that your best saving years are in your 30s and 40s, when you’re making a lot,” Jones says. “They’re actually in your 20s, when you can realize the time value of money.”

But even the financial pros acknowledge that getting people to focus on a financial goal so far in the future is tough. Instead of mulling over retirement strategies, the best advice is just to get into the good habit of saving. The best place to start is your company’s 401(k) or 403(b) plan. If you’ve got an employer match, invest enough to get it, something that only a third of 20-somethings who are in a company-sponsored plan even do. Otherwise, you’re leaving free money on the table.

Most likely your employer has automatically enrolled you in your company 401(k), which more companies are now doing. That’s a painless way to start saving. “If you don’t see it, you’re not going to miss it,” says Michael Francis, a financial planner in Milwaukee who counsels 401(k) savers.

To boost you savings over time, commit to upping your contribution yearly. If in the first year you invest 3% of your pay, try increasing it by 1% the year after and so on. If you’re