How Smart 20-Somethings Are Planning For Retirement

While many financial advisors that take a no-nonsense approach to financial wellness might say otherwise, we happen to be of the opinion that if you aren't thinking about retirement in your twenties, you actually aren't irresponsible or reckless. You're pretty normal — with a little room for improvement.

Let's face it: no one wants to think about their golden years during their twenties. This is the time to focus on building your career and planning for immediate future milestones like starting a family or buying a home. However, when you start thinking about retirement sooner rather than later, you're helping your future self. You'll be grateful for these smart financial habits when you're in your thirties and have a lot more money to spend because you started planning for your future and retirement early.

Reimagining financial health as something that feels approachable and accessible requires action and discipline. Here's what you should know about evaluating how much you need for retirement in your twenties, with zero pressure or guilt trips and actionable steps to take.

Early retirement bird gets the worm

When you put your money into a retirement account, you benefit from compound interest. Compound interest is when you don't just make money on your principal balance (the money you initially deposited into the account), but also on the interest you've earned in previous months.

• If you invested $15,000 at the age of 25 at a rate of 5.5% interest, you'd have $57,200 at the age of 50.

• Wait until the age of 35 to invest the same amount of money, and you'll only have $33,487 at the age of 50. That's a difference of nearly $24,000.

Building your retirement savings now helps you achieve your financial goals for the future. When you start retirement planning early, you can make your money work for you and your future self. The money you earn on your retirement savings is more valuable than just compound interest; it's today you building future you financial freedom.

Get a head start on retirement planning in your twenties

There are a few smart techniques to use when you start actively planning for your retirement. Let's get into three of them.

Say yes to your 401K employer match

You might think skipping out on contributing to your employer-sponsored 401K is the best way to keep more of your paycheck. But, you might be missing out on free cash. Avoid FOMO and review your employee benefits to see if your employer offers a 401(k) match. If they do, review your benefits guide or check with your HR department to find out what the match is and how to max it out. Saying yes to free money is always a good move. Our mentors can help you navigate confusing benefits documents. And you can schedule a 20 minute or 50 minute session with them in your Fruition account. Even if your employer doesn't offer a 401(k) match, contributing to your 401(k) consistently will give you a boost for retirement. Even a 3% contribution of your earnings can compound into much more over time.

Open and fund a Roth IRA

A Roth IRA is an excellent choice for saving for your retirement. You can invest up to $7,000 each year once you open a Roth retirement account with post-tax contributions. One strategy for success is to set up automatic deposits so that the balance in your retirement account is always growing, even if it's by small amounts. Once you're contributing to your Roth IRA, make sure you invest what you are contributing to benefit from compound interest. There are a lot of options to invest the money in your retirement account like mutual funds, index funds, and ETFs, which are like baskets of stocks. Our mentors can help you understand all of these options, too. Trust that you future financial self will thank you.

Invest in your retirement with a traditional IRA

A traditional IRA is another option to plan for your retirement. Lately, Roth IRAs are more popular, but a traditional individual retirement account offers different tax benefits when thinking about retirement. When you fund your IRA, you are making deposits with pre-tax money. Generally, you pay tax on distributions when you take them out. Because of this, a traditional IRA can be a smart choice for those who aren't earning a lot now but expect to in the future. Like a Roth IRA, you also need to invest the money you deposit into your IRA. If you decide to go the traditional IRA route, it is a good idea to meet with a tax professional to ensure you are making the best choice for your personal financial situation.

How to plan for retirement if you're financially struggling

For many twenty-somethings, like you, paying rent and affording groceries and utilities can be tough each month. This is especially true now when the economy is like a roller coaster and inflation is on a pogo stick. When the idea of planning for retirement feels completely out of reach, try some accessible best practices:

Focus on your emergency fund

The best way to start saving in general is by building an emergency fund. Ideally, you want to have three months of living expenses set aside in case you were to lose your job or experience a catastrophe. Set this money aside in a high-yield savings account (HYSA) so your savings are earning. When you're struggling to get ahead, saving money can feel like an impossible task. Even small amounts like $50 a month can help you build good financial discipline and improve your overall financial wellness.

Prioritize spending (but don't obsess)

Learn how to prioritize your spending. There's no need to obsess over every penny. It's a good idea to periodically sit down and evaluate how you're spending your money and whether or not there are areas where you could cut back. Try setting dates to do this weekly or monthly. Use the spending view and budget in your Fruition account to see where your money is really going. It's not realistic to eliminate every discretionary expense, instead learn to cut out the costs that might not be worth your hard-earned dollars and the credit card interest your future self will have to pay for them.

Get some help from a financial mentor

If financial wellness was simple, everyone would have it figured out. If you're feeling embarrassed because you need some financial guidance, you're not alone. Seeking outside help when it comes to improving your financial wellness or financial literacy is the move -- and means you're already ahead of the game. Remember, even championship teams haves coaches that helped them get the trophy.

Think of our mentors like financial coaches -- they can give you encouragement when you need it or some tough love when your little treat budget has outsized your paycheck. You can find and connect with your mentor in your Fruition account.

Planning for retirement doesn't have to be a drag. If you start now, even with small steps, your future self can realize financial freedom.

Set goals. Figure out how much you can save without sacrificing your current quality of life. If that number is smaller than you want it to be, it's still smart to set it aside. Something consistently is better than nothing always.

Save smartly. No need to suffer today, but keep your future self in mind by calculating an amount you can consistently set aside each month. No matter the number, this amount will grow from compound interest.

Revisit your plan. What works today may not work for future you. Partner with your mentor to revisit your retirement plan quarterly or annually so you can adjust your savings, contributions, and investments.