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Saving for Retirement in Your 20s

money scrabble[The following is a guest post]

It’s never too early to think about retirement planning. In fact, the earlier you start saving for retirement, the better chance you have to retire comfortably.

To some, setting aside retirement savings in your 20s may seem too early. However, based on retirement savings calculators, if your money has an eight percent rate of return and you wait until age 32 to start saving, you will have to contribute more than twice as much per year to reach the same retirement savings goal as someone who started at 22. No matter what your income, budget or retirement dream, start planning for the future with these savvy retirement planning tips and turn your golden years platinum.

Establish a personal savings account

With new expenses, college loans, and often limited income, saving in your 20s isn’t always easy. But it’s important to get into the habit of setting money aside now, so you have it when you need it. If you don’t already have a personal savings account, open one and start contributing on a weekly or monthly basis. It doesn’t matter how much or how little you can contribute, as long as you try to save money whenever you can. Even if you contribute just $20 a week, by the end of the year you’ll have $1,040, enough to open a retirement savings account like a Traditional or Roth IRA. Consider regulating your savings for retirement with automatic transfers or direct deposits into your personal savings account each month. You can save without even thinking about it!

Create a retirement savings road map

Ask yourself, at what age would you like to retire, and how much money would you like to have to live on? You don’t have to have your retirement savings goal nailed down right now, but it’s wise to have an idea of where you want to be so you can find out how you’re going to get there.

Use a retirement fund calculator to determine how much you should be saving a month in order to reach your golden years’ goal. For example, if you’re 28 and want to save $1,000,000 by the time you’re 65, you should be contributing around $5,000 a year to a retirement account that has an eight percent return. That’s $416 a month you need to start saving now. While you may not be able to anticipate all your future expenses, you can consider what annual salary range you’d like to have during retirement and work to save enough for that.

Participate in your employer’s 401(k) plan

According to a 2012 study by ScottsTrade, in 2011, only 37 percent of employed members of Generation Y participated in their employer’s 401(k) plan. Likewise, only 63 percent of Generation Y holds a tax-deferred account like an IRA, the smallest percentage of any generation. Luckily, this is an easy fix for all Gen Yers. Not only can you automatically contribute what you want to a 401(k), but many employers match a percentage of your contributions. That’s free money toward your retirement savings.

For example, if you’re 25 and make $40,000 a year, contribute five percent of your income to your 401(k), and your employer matches your contribution by 50 percent, you can expect to save around $800,000 by the time you’re 65. And that’s only if your income stays at $40,000 and you keep your yearly contribution low. As you gain experience and earn raises, or land better, higher-paying jobs, you can increase your monthly contributions to 401(k) accounts.

Open a Traditional or Roth IRA

Even if you’re already contributing to a 401(k), consider also opening a Traditional or Roth IRA (Individual Retirement Account). Each year you will be able to make tax-deductible contributions up to a certain amount determined by your income. If you are contributing to both a 401(k) and IRA, the tax-deductible amount you can contribute may decrease as your salary increases. Be sure to look into current IRS regulations before opening an IRA.

You can also look for an institution with an IRA savings plan that will help you build up funds for retirement accounts but without early withdrawal penalties. This can be a good way to save toward a goal while maintaining more liquidity. It’s important to compare the benefits and features of IRA account structures to find the best tool for saving in your 20s. Keep in mind, there are federally regulated annual contribution limits to both types of IRA accounts, so be sure you plan appropriately.

  • Traditional IRA: Contributions are tax-deferred and so are earnings, but distributions are taxable. Speaking to a tax advisor can help you decide if this is the right move for you.
  • Roth IRA: Contributions are not tax-deductible but earnings grow tax-free and qualified distributions are tax free. Since there is an income ceiling with a Roth IRA, it may be a good retirement savings option for 20-something’s with lower income. Plus, the tax-free and penalty-free structure for qualified deductions may allow more liquidity that Generation Y needs to pay for school loans, down payments on a home or emergency medical bills.

A balanced portfolio may include both of these options, a 401(k), and an IRA savings plan or CD.

Speak to a tax advisor learn more about saving for retirement in your 20s

No matter what vehicles you use in your retirement planning, it’s important to get a jump start on saving now. Set aside $10 to $20 each month to start, and grow your contributions to a retirement savings account as you are able. A tax advisor or representative at your local bank can help you examine retirement savings plans more closely to find the right fit.

Sponsored content was created and provided by RBS Citizens Financial Group.

Photo by Philip Taylor PT

My favorite part of the holidays

christmas cookiesOne of my favorite holiday traditions has always been baking Christmas goodies with my brother, sister, and mom. Growing up, one of the first weekends in December, we’d totally take over the kitchen (which wasn’t that huge to begin with) to do a marathon two-day baking event that turned out yummy treats that would last us the rest of the holidays, including giving plenty of goodie baskets away to neighbors, friends, and family.

Recently, my brother and sister and I have started transferring this tradition to my sister’s house. We pick one weekend early in December, and my brother (home from break) and I go over to my sister’s lovely, roomy suburban kitchen with the big island and lots of counter space. My mom comes too, of course, but she largely spends a lot of time telling us how to do things while she “samples” our results. (The benefit of having grownup children, I guess! She certainly earned it with all those years she helmed the baking.)

My little niece and nephew love pitching in (as much as they can). Right now, that consists of super-easy tasks like pouring chocolate chips into cookie batter and pressing cutouts into dough. But soon enough, they’ll be able to really roll up their sleeves and pitch in, and I can’t wait to watch the next generation start to learn all the cookies and candies we learned to make grown up. (Probably adding in some new ones of their own.)

For me, this is one of the best parts of the holidays, because I get to enjoy that great family get-together feeling without all the stress of dressing up, cleaning, decorating, and hosting. We wear whatever we don’t mind getting floury, usually go into giggle fits several times, and blast the cheesiest Christmas music we can all weekend long. It reminds me of all the great times we had growing up, and it creates new memories for the future. As much as I love seeing my family on Christmas itself, this is always one of my favorite times of the season because it’s just plain fun and we all get to relax and just be silly.

So, I wanted to challenge you to find your favorite, non-Christmas-day part of the holidays. Is it putting up the tree? Watching those Claymation Christmas specials? (They totally make me feel like a kid again.) Driving around the neighborhood looking at all the lights? There are so many lovely parts of the holidays that we tend to overlook because we’re so focused on getting to the big day. But instead of the whole month of December being one big race to Christmas, how can you find ways to enjoy the whole month, and all the great things that go with it?

Let’s enjoy the journey and not just the destination!

What’s your favorite part of the holidays? What do you love about it?

 

~Heart,

Em

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photo credit: Rebecca

Yeah, I Buy Travel Insurance (Sometimes)

cruise ship[The following is a guest post from Crystal at Budgeting in the Fun Stuff.  That’s where she writes about her bills, saving for the future, and making sure that they fit in fun stuff along the way.]

In our early 20’s, my husband and I never “splurged” on travel insurance…ever.  We thought that we made plans and there was no way we’d ever need to change them.

At least we have been smart enough to learn a little since then…

When Travel Insurance Makes Sense

We didn’t actually jump on the travel insurance train until we signed up for our first cruise in 2009.  A few months before we bought our tickets, our in-laws were stuck on a cruise of their own for 3 extra days thanks to a hurricane.  We made a mental note that weather happens.

Then one of my husband’s grandparents had a mini-stroke just a few weeks later and ended up in the hospital for more than a week.  My in-laws were there most of that time, but we all mentioned that it was lucky this didn’t happen before their cruise.  My in-laws pointed out that they could have skipped the cruise and got a refund thanks to their travel insurance.

Hmmm, two indications that travel insurance would be a good idea.  We paid the extra $25 per person to make sure that we’d be covered for a ton of what-ifs.  Worth it to protect $1500 in cruise tickets.  And although we ended up not using it, we’ve spent the $20-$40 insurance fee for every cruise since then too.  We used the policies pointed out by our travel agent, but you can find travel insurance online at quite a few places like Bupa.

It Can Go Too Far

All of that said, you do need to weigh the benefits of the travel insurance with what it will cost.  Also, remember to pay attention to what it covers.

Earlier this year, I bought a plane ticket to visit a blogging buddy.  The travel insurance for the $250 ticket was $40, and the trip was just 3 weeks away, so I passed.  A few days later, my friend let me know that he would have to leave the country unexpectedly.  I called the airline and was told that it would cost $200 to change the flight.  I was also told I should have bought a refundable ticket.

Well, let’s look at the options.  First, I could have bought travel insurance, but it would not have helped in that specific situation.  Or I could have bought a refundable ticket at $600 instead of $250, but that’s more expensive than just buying another ticket.  Lastly, I could pay the $200 and change my ticket.  That actually would have been my only logical choice if I decided to postpone my trip.

Instead, I just visited my friend’s family instead.   It was a pretty good trip.  Overall, travel insurance would not have helped me and the refundable option was illogical.  So remember to think out your decisions when making backup plans.

Have you ever bought travel insurance?  Ever needed to use it?

Blog Roundup (12-6-13)

I always love sharing my favorite blogs with people, so each week I’ll be giving you guys a roundup of the posts I’ve really enjoyed reading.

If you like them, make sure to subscribe and follow these great bloggers on Twitter and Facebook to share the love!

~Heart,

Em

Are there any great posts you came across recently? Share them with us in the comments!