Preparing for Retirement in Your 20s and 30s

Preparing for retirement in your 20s and 30s can mean a future of financial freedom. The earlier you start planning for your future, the more time you have for your money to grow. Consider these helpful tips when you’re planning for your retirement.

Start Saving

If your employer offers a 401(k), take advantage of it. If you don’t have the benefit of a 401(k), there are still ways to save for retirement independently. The credit union has products to help you start saving for retirement. You can open an Individual Retirement Account, or IRA, with Alltru and begin building retirement savings on your own.

Many people choose to save through more than one retirement vehicle. Combining an employer-sponsored retirement plan with other long-term savings or investment accounts can help diversify your retirement strategy.

Follow a Budget

Budgeting is an important part of retirement planning because it helps create room in your finances for consistent saving. There are a few different ways that it makes a difference. First, a good budget allows you to save money every month. This needs to be more than just saving for specific goals like an emergency fund or car down payment or even your generic savings account. Your budget should create space for you to save for your retirement every month.

If you have a retirement plan with your employer, your retirement savings are deposited when you receive your pay statement. This means that you can budget with the number on your pay statement that you received from your paycheck. This can also be a good opportunity to contribute to an IRA or other long-term savings and investment accounts.

By following a budget, you should create a lifestyle that you can maintain with your income. This lifestyle will likely be similar to what you live once you retire and you’re living off your savings and other retirement income.

Automatic Transfers

While saving early is important, so is the habit of doing so automatically on a continuing basis. We use automatic paycheck deductions to transfer money to our 401(k)s and CD. This helps avoid the hassle of trying to remember to transfer money each time and making sure we are set for our future. A common guideline is to save approximately 15% of your pre-tax income toward retirement, though the right amount depends on your goals and circumstances. At Alltru we have a High Yield Online Savings account so you can earn an even better yield on your money.

Take Advantage of Free Money

Find out if your employer offers to match your 401(k) contributions. If so, employer matching contributions are one of the most valuable retirement benefits available. A 401(k) match typically requires you to contribute a certain amount of your base pay up to a pre-set limit, and the company will match your contribution with funds of their own.

Contributing enough to receive your full employer match can significantly increase your retirement savings over time.

Don’t Let a Better Job Derail You

If you change jobs, don’t let your retirement fund take a hit. Too often, workers opt to cash out a 401(k) from their previous employer. If you do cash out before age 59-1/2, you’ll pay a 10 percent penalty on top of income taxes, which could be as much as 37 percent if you’re a high earner. Many employees choose to roll over a former employer’s retirement plan into an IRA to avoid taxes and penalties while keeping their savings invested.

Be careful to not switch jobs too soon. When an employer contributes to your retirement fund, they have the right to withdraw their contributions if you leave the company within a certain time frame. This creates an even larger hit to your savings. Before changing jobs, review your employer’s vesting schedule so you understand how much of the company contribution you may be eligible to keep.

Use Your Resources

It’s incredibly important that you understand what is happening with your money. Putting that much money away every month can be nerve-wracking and cause some stress on your monthly budget. Ask questions of your accountant, financial planner, or simply make an appointment to talk to an expert at Alltru. Knowledge is power. There are no stupid questions.

Get Caught Up

If you feel behind on preparing for your retirement, use your age to your advantage. The younger you are, the more time you have to save and get caught up on your savings goals. With so many retirement options, it’s key to start with some easy ways to start.

The first step should be setting up a retirement plan with your employer and contribute enough to get the full match. After that, create a budget to allow additional room for saving. A financial professional can help you evaluate retirement savings options and determine which accounts best fit your goals.

By taking these steps now, you can save and look forward to a relaxing and enjoyable retirement.