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Why To Start Saving For Retirement In Your 20s

It can be extremely difficult to motivate yourself to save for retirement when you’re in your twenties. If you plan on retiring in your 60s, you’ve got 40 years to save — but you have nights out, vacations, and clothes that you’d rather spend your money on now.

To me, there are two main reasons young adults have a hard time choosing to save for retirement now.

In a world run on instant gratification, it’s difficult for them to think about saving for something that requires patience. To them, it’s so far down the road that it’s easy to simply say, “What’s the point?”

Another reason is that they are waiting for the perfect time or to reach a certain milestone. They use excuses like, “I’ll wait until I’m debt-free” or “Only rich people invest, so it’s not my time yet.”

While I do have a strategic financial priority list that I will talk about in a minute, the fact of the matter is this: Retirement is the most costly expense of your life. It’s more expensive than college, a house, or paying for your kids’ college. And if you’re waiting for the perfect time to start saving for retirement, it’s now. What may be even more important than saving— you need to be investing.

I’ll let you in on a little secret: Retirement can be difficult to reach without investing

I know— it’s a hard pill to swallow.

45% of Americans over age 55 have nothing saved for retirement. Almost half of Americans set to retire soon have absolutely nothing to sustain them.

And minorities — women, people of color, LGBTQ, people with disabilities — are disproportionately affected by this poverty in old age.

This is why, after finding where you land on the financial priority list, you need to start investing, even if it’s just $20 a month. Retirement may be, without a doubt, the largest expense of your life, and you to be as ready as you can be.

When should I start saving for retirement?

I’m going to share my financial priority list with you, so you can monitor where you are and what you should focus on next when it comes to reaching all your financial goals.

  1. First and foremost— you need an emergency fund. This includes 3-6 months of living expenses in a high-yield savings or cash account.
  2. Second— pay off high-interest debt. In other words, the one with the highest rate (this will most likely be credit card debt, or on occasion, student loan debt.)
  3. Start saving for retirement— Depending on which accounts you qualify for and preferred tax strategy, this looks like opening one of the several retirement tools like a 401K, IRA, SEP IRA or Solo IRA.

There is one exception, however, that lets you get started on step three without completing step two. This is in the event that you get a 401K employer match.

A 401K is often granted to those in the private sector. It’s a tax advantage retirement account and it’s tied to your employer, making it a benefit. The coolest thing about a 401K is that oftentimes, your employer will offer to match it. This means that if you choose to contribute 3% of your salary, your employer will automatically contribute 3% as well. If this is the case, you may want to consider getting your 3-month emergency fund saved up and then contribute up to your employer match, before paying off high interest debt.


Picture 65-year-old you. Fantasize about how amazing you’ll be as a retiree.

Who are you? What is a standard day-in-the-life for you? What’s your favorite piece of clothing, hobby, place to travel? What are your hopes and dreams?

For me, I’m lounging on a beach in Cabo, I have a collection of the cutest little handbags, and I often flirt with my much-younger Pilates instructor named Luca. (Basically, I’m one of the Golden Girls.)

Visualizing older you as, gasp, an actual person can help you feel motivated to save. People who create visual goals are more likely to achieve them — so do your best to picture what your ideal retirement would look like!

The Power of Compound Interest

We’ve already established that investing your money is the only surefire way to retire one day. This looks like opening up a tax-advantaged retirement account like a 401K or IRA.

Thankfully, because of the power of something called compound interest, time matters more than the amount of money you choose to invest. Time, rather than the amount of money you are able to invest, is going to become your best friend. Compound interest is the result of calculating your interest earned over time by adding it to the principal investment. It only works if you choose to stay committed and keep your eyes on the long-term goal of that beach in Cabo, or whichever retirement lifestyle you picture for yourself.

Another way to think about the impact of growth over time is this penny example: If you were to have a magic penny that doubled every day for 30 days, you could wind up with $5,368,709.12.

This is the power of time. You only invested a penny, yet you had thirty days to watch it grow. This is why we have to get you investing now with an amount you are comfortable with. Not in a week, not in a few years, not “when I’m making more money.”

It doesn’t have to be a million dollars. It doesn’t even have to be $100. You can just get started with $20 a month — every little bit counts. It doesn’t matter how small it is, just get started.

Put this money into a retirement account. The maximum contribution in 2020 is $19,000 a year. Just to be clear— having a 401K does make you an investor. You are indeed investing. So, make sure to recognize and celebrate that.

And in 6 months, or 2 years, or 10 — when you’re wondering WHY AM I PUTTING AWAY ALL OF THIS MONEY — remember older you. The older you deserves your hard work.

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*Personal Capital compensates Tori Dunlap (“Author”) for providing the content contained in this blog post. Additionally, in a separate referral arrangement between Author and Personal Capital Corporation (“PCC”), Author is paid $70 and $150 for each person who uses Author’s webpage (www.HerFirst100k.com) to register with Personal Capital and links at least $100,000 in investable assets to Personal Capital’s Free Financial Dashboard. As a result of these arrangements, Author may financially benefit from referring potential clients to Personal Capital and/or be incentivized to present blog content that is favorable to PCC. No fees or other amounts will be charged to investors by Author or Personal Capital as a result of the Referral Arrangement. Investors that are referred to PCC and subsequently subscribe for investment advisory services provided by PCC’s affiliated adviser, Personal Capital Advisors Corporation (“PCAC”) will not pay increased management fees or other similar compensation to Author, PCC or PCAC as a result of this arrangement. Additional information about PCAC is contained in Form ADV Part 2A available here.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Tori Dunlap is a millennial money and career expert. After saving $100,000 at age 25, Tori founded Her First $100K to fight financial inequality by giving women actionable resources to better their money. A Plutus award winner, her work has been featured on Good Morning America, New York Magazine, Forbes, CNBC, and more. An honors graduate of the University of Portland, Tori currently lives in Seattle, where she enjoys eating fried chicken, going to barre classes, and attempting to naturally work John Mulaney bits into conversation.
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Let us know…

This year, my top financial priority is:

Building my emergency fund
Paying off high-interest debt
Budgeting better
Saving for a short-term goal, like a vacation or new car
Increasing my investment contributions
Maintaining status quo - I’ve got this under control

Make moves toward your money goals with Personal Capital’s free financial tools.