How to Start Saving for Retirement in Your Teens and 20s

How to Start Saving for Retirement in Your Teens and 20s

When you’re in your late teens and early twenties, retirement may feel like a lifetime away –  and in some ways, it is. But the sooner you start saving for your future, the sooner you will be able to retire and the less you’ll have to worry about affording your lifestyle when you stop working.

Before getting started, it’s important to know that getting a head start is an amazing accomplishment, and while you have big expenses ahead of you – maybe buying your first car, going to college, moving out of your parent’s house, and more – it doesn’t take a lot to make a difference in the future. Small savings now grow into big savings 40+ years from now.

If you’re wondering how to get started, read our tips below. Planning for your future can be easy and stress-free if you do your research, understand your options, and make small changes over time.

Set Goals

Before getting started, it’s important to set goals and understand your wants and needs. Consider the following:

  • Are you looking for an account you can manage on your own?
  • Do you want a financial advisor to help you along the way?
  • Do you want flexibility with your savings, or do you want to set it and forget it?
  • How old would you like to be when you retire?
  • How much can you afford to set aside right now?
  • Do you expect your expenses to increase anytime soon? i.e. buying a car, going to college, paying higher rent, traveling, etc.

You should consider all these questions before starting your retirement savings journey, especially at a young age. As you work through the questions, you will have a better understanding of what you can afford to contribute, and which account types you should utilize.

If you have extra room in your budget, hiring a financial advisor can be a great resource. Not only can they help you set up your account, but they can determine your investment strategy and whether it should be conservative, moderate, or aggressive. In many cases, the younger you are, the more aggressive it should be, but sitting down with an advisor will help you determine that based on your goals, budget, and timeline.

Open an IRA

While having a savings account and utilizing your employer’s 401(k) plan (if you work for a company that offers one) is a good start, having additional avenues of retirement savings is recommended.

Roth IRAs are a great option because you can control the account on your own. While they have smaller annual contribution limits than a 401(k), when you’re young, a little can go a long way. In 2023, the annual contribution limit is $6,500 for a Roth IRA, but the IRS determines new limits every year, so check back for more information regarding qualifications, contributions, and restrictions.

When you have a Roth IRA, you contribute to the account with after-tax dollars, meaning money you’ve already earned that’s in your account. Because of this, the funds grow tax-free until retirement, and you won’t owe any additional taxes on the funds when you withdrawal them in retirement.

Like any other retirement account, there are penalties if you withdrawal the funds before retirement age, so make sure you understand the rules before you start adding money to the account. Early withdrawals are subject to both taxes and early withdrawal fees, which can be up to 10% of the funds.

Consider this example for Roth IRA savings:

If you are 21 years old making a salary of $35,000 per year and contributing $4,000 annually to a Roth IRA, you can accrue approximately $960,000 to your retirement savings efforts by the time you turn 67. That money is supplemental to your 401(k) savings, which, when combined, can be a solid cushion for retirement. To see your exact projections, use Nerdwallet’s Roth IRA calculator.

Small Savings Make a Big Difference

Even though your contributions may be small in your teens and twenties, it can make a big difference over time. If you’re looking for ways to enhance your retirement savings accounts, there are some ways you can earn extra income or make room in your budget.

If you’re not already using a budget, it’s important to create one. Tracking your income and expenses can help you visualize where you may be overspending and under saving. There are mobile apps you can use to access your budget at your fingertips, including Mint and You Need a Budget. By separating your expenses into categories, such as wants, needs, and debt payoff, you can see exactly how much you have to spend on each. To begin, use the 50/30/20 budget rule and download a mobile app that works for your needs and goals.

As you continue to grow your career and earn more money, you should always consider ways to increase your contributions and save for the future. If you need more help along the way, visit to speak with a financial advisor to prepare for today, tomorrow, and the future.

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