Saving For Retirement In Your 20s And 30s? Your Future Self Will Thank You.

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For many people in their early careers, saving for retirement is low on the list of priorities. When there are more pressing bills to pay, like student loan debt or childcare, setting aside money can be tough. People in their 20s and 30s are often working up to their full earning potential, which makes it difficult to save money for a life event that won’t happen for decades.

Still, starting the retirement planning process early in your career can set you up for a more comfortable future. People who start thinking about and saving for retirement in their 20s and 30s generally end up saving much more than those who wait until they are in their 40s or 50s to start. For example, consider a 25-year-old and a 45-year-old who both invest $500 per month. Assuming a 4% return, a 25-year-old would have approximately $629,000 by the time they reach full retirement age of 67. However, a 45-year-old would have approximately $205,000.*

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The tricky part for all savers is to take care of their future keeping in mind the present cash flow. Here are five ways that people in their 20s and 30s can start planning and saving for retirement while building their careers and balancing the needs of their current lifestyle.

#1. Choose your retirement “bucket” wisely.

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There are generally two types of retirement accounts: tax-deferred and after-tax. Tax-deferred retirement accounts include employer-sponsored plans, such as a 401(k) or 403(b), and traditional individual retirement accounts (IRAs). Contributions to these accounts are not taxed; Instead, you pay taxes when you take distributions from the accounts. Tax is calculated based on your tax bracket at the time of delivery.

In contrast, after-tax accounts, such as Roth 401(k)s and Roth IRAs, are funded with after-tax money, which means you pay taxes on the money you’ve already contributed. Is done. When you withdraw money from the account in retirement, you don’t pay taxes on those distributions.

Choosing an after-tax savings option early in your career can be beneficial when you’re making less money (and therefore in a lower tax bracket). Some employer-sponsored plans offer Roth options, allowing you to save money in your workplace retirement account that can be distributed tax-free in retirement. Additionally, the establishment of each Community for Retirement Enrichment (SECURE) Act 2.0 expanded the ability for employers to make matching contributions to employees’ Roth 401(k)s. Keep in mind, however, that you will pay taxes on employer contributions to a Roth 401(k) in the tax year in which they are made.

# 2. Get your perfect retirement match.

Speaking of employer plans, if you have a 401(k), 403(b) or thrift savings plan with an employer match, consider putting aside at least enough money to receive the full match each year. Do it. For example, let’s say your annual salary is $50,000. If your employer matches up to 4% of every dollar you contribute to your plan (or $2,000 annually), you would need to contribute about $167 each month to receive the full match. If you contribute less than that, you could be leaving money on the table.

#3. Increase your future self.

While you want to make sure you contribute at least enough to maximize the employer match, you can contribute more than the employer match to your workplace plan. One way to give your future self a raise in retirement is by increasing how much of your annual salary you contribute each time during your working years. It doesn’t need to be a big bump; Increasing your contribution amount by just 1% each year can make a big difference to your retirement savings. By the time you reach your high earning years, you will be putting away a significant amount annually.

This “annual increase” approach also works with contributions to self-employed retirement plans, such as the Simplified Employee Pension Plan or the Savings Incentive Match Plan for Employee IRAs, as well as traditional or Roth IRAs. Keep in mind, however, that annual contribution limits apply to both traditional and Roth retirement accounts. Your financial professional can help you determine how much you should contribute to each account without exceeding the limits.

#4. Diversify your investments.

Investment diversification and proper asset allocation of your retirement assets are of utmost importance for a successful retirement. Most employer-sponsored plans, as well as traditional and Roth IRAs, offer a range of investment options. You can choose from these options when you set up your retirement account and make adjustments as the market environment changes or your goals change.

Some retirement accounts offer target-date funds, which are created to be more growth-oriented in the early years of your career and become more conservative as you approach retirement. For example, let’s say your target date is 2053. Today, your target-date fund may include a heavy mix of large-cap, small-cap, and global equities as well as emerging markets. Over the years, the fund may shift to include more fixed-income options, such as bond funds.

The selection of investment options for your retirement accounts can be overwhelming. A financial advisor can help you identify investments to help you meet your goals. You can work with a consultant of your choice, or your employer can work with a consultant who is familiar with the specifics of your workplace plan.

#5. Take advantage of other financial opportunities from your employer.

Paying attention to other areas of your financial life in your 20s and 30s can also make a big difference to your (and your family’s) future. If your employer offers life insurance as an added benefit, you can sign up to get coverage and more benefits for your loved ones. Using a Health Savings Account or Childcare or Healthcare Flexible Spending Account can increase how much you pay in taxes, both now and in retirement.

For those who have had to choose between paying off student loans and saving for retirement, SECURE 2.0 has helped. Beginning in 2024, employers can make matching contributions to an employee’s retirement plan based on qualifying student loan payments made by the employee. If your employer offers it, you may no longer have to choose between taking care of your present and future self — you can now do both.

By starting early, people in their 20s and 30s can carve out a more comfortable future for themselves. It starts with taking small steps. If you can’t put up enough money to match the employer on your workplace plan, start with a smaller amount and work your way up. The sooner you start saving for retirement, the better your chances of being able to realize your desired lifestyle in later years.

Wherever you are on your retirement journey, start building your ideal retirement lifestyle by working with a trusted financial partner. From investing and saving to planning for future income and inheritance, CIBC Private Wealth works with retirement savers of all ages and backgrounds. our journey private money page to learn more.

* Calculated using Compound

computer application
Interest Calculator at The rate of return shown is illustrative only and should not be construed as a guarantee of any particular rate of return.

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