3 retirement planning must-dos for 20-somethings
The decisions you make in your 20s can shape your future for years to come. That's especially true when it comes to your finances. Between slaying your student loan debt and trying to launch a career, saving for retirement probably falls pretty low on your list of priorities. But it's not something you can afford to neglect, even if you have several decades to build up your nest egg.
You don't want to let your 20s slip by without building a solid foundation for the future.
Click ahead for a look at three things you need to be doing to ensure a big payoff down the road.
1. Cash in on your company’s 401(k) match
These days, a lot of employers automatically enroll new hires in their 401(k) plans. But if you're enrolled at the default contribution level, you may not be chipping in enough to get the full match. And that can cost you a decent pile of cash.
According to a Financial Engines study, American workers miss out on $24 billion in matching contributions each year. That means that on average, each employee fails to collect $1,336 that could be put toward their retirement. Over the course of a 20-year career, a single employee could potentially lose out on more than $42,000.
If you're not saving enough to get the match, you might need to put that at the top of your to-do list. Ideally, you'd want to increase your contribution rate all at once to get the most value out of what you're saving. But if you can't afford to shrink your paycheck that much, you can start by bumping up your savings rate by 1 percent each year.
2. Look for other places to save
A 401(k) can be a great option for 20-somethings. But you don't want to get tunnel vision. If you do, you might end up overlooking the benefits of other tax-advantaged ways to grow your retirement fund.
As of 2015, you can save up to $5,500 in a Roth IRA account. You won't get a tax deduction for what you save, but when you start pulling the money out in retirement, you won't pay any taxes on your withdrawals. A Roth IRA can work to your advantage if you expect to be making a lot more by the time you hit retirement age.
If you've got a high-deductible insurance plan, you could also look into getting a health savings account. The contribution limit for 2015 is $3,350 if you've got single coverage and anything you put in is not subject to federal income taxes. You don't have to use the money until you need it, so you can build up a nice cushion by saving those pre-tax dollars when you're still young and healthy.
3. Take the sting out of student loans
Student loan debt is taking a toll on the wallets of millions of grads and the average balance hovers around $29,000. This is one of the biggest financial obstacles that 20-somethings are facing. And if your monthly payments are crushing your budget, that's going to put the brakes on your ability to save for retirement.
While it would be nice to just wish the loans out of existence, that's not realistic, so the next best thing you can do is to make them more affordable. Refinancing your private loans or consolidating your federal loans can bring your payments down and shave off some interest. Just keep in mind that you'll need a good credit score to get the best refinancing rates.
There’s no time like the present
Saving for retirement when you're young is better than waiting until you're 40, even if you start small. Putting away $5 or $10 today doesn't seem like much, but you'll be surprised at how much your savings have grown once you reach your golden years.