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Set Realistic Retirement Goals

(Grow Your Money)

Retirement planning in your 20s may seem like a daunting task. These days your finances may be tight, so it’s hard to imagine setting a chunk of money aside without seeing a penny until way later in life.

But here’s the thing — you still should invest for retirement now. You have a golden opportunity in the beginning of your career to make one choice that changes everything later on.


It doesn’t matter how much money you have. Every single person has this secret weapon — it’s called time. If you use it to your advantage, you don’t have to do much more than sit back and watch your nest egg grow itself.

Putting your money in any account that earns interest will cause it to multiply before your eyes. But how much it grows depends on the amount of your contributions and what you invest in. The longer you wait, the less of the power of compound interest you’ll be able to harness. The time to act is now.


Many people don’t want to wait to enjoy the freedom of retirement. One basic definition of being retired is that you no longer have to work to support yourself. But whether you retire younger or older, you still need money. Instead of earnings from a job, retirees usually live off of savings, investments, fixed payments like rental properties and annuities, and Social Security benefits.

To calculate a realistic retirement goal, you could try to envision your life in retirement, but that’s pretty hard when you’re in your 20s. When you’re young, it’s not so much about how much you will need in retirement, but rather, what’s the highest possible amount you could have?


The more money you have, the more options you have. You may not know where you will be 20 or 30 years from now, but wherever it is, you’ll want as much money as possible. There are lots of retirement calculators online if you enjoy running scenarios. It can be eye-opening, and even fun, to play around with what would happen in different circumstances. For example, how much might you have if you contribute 10-15% of your salary to your 401(k) every year and your salary increases steadily until you retire in 30 years?


In addition to time, the other key ingredient to maximizing your returns is to invest as much as possible. That doesn’t mean that you should be irresponsible — your bills and living expenses come first — but anything extra you can throw into savings and investments will pay off.

Many people live paycheck to paycheck, so finding money to invest seems unrealistic. But what about “extra” money, like gifts, bonuses, inheritance and tax refunds? These unexpected windfalls can kickstart a retirement account, then you can contribute small amounts over time. The more you can put in and the earlier you start, the faster it will grow.

Young woman in the city wondering about her retirement goals.


Workplace retirement plans are extremely helpful. The setup usually is done for you. All you have to do is tell your plan administrator how much to take out of your check — often a percentage of your pay, such as 3%. If you’re lucky, your employer matches another 3%. If you have a 401(k) or similar plan, these contributions come out of your pretax pay, so you’re getting even more of your money working for you. You pay taxes when you withdraw in retirement.

If you don’t have a 401(k), you might open a traditional individual retirement account (IRA) or start microinvesting. Consider a Roth IRA, especially if you think you will make more money when you’re older. Unlike a traditional IRA or 401(k), a Roth account taxes contributions, but does not tax withdrawals as long as they’re made after age 59 ½. If you are currently in a lower tax bracket than you plan to be in when you’re 59 ½, it might make sense to pay taxes now, rather than later.


Inflation is no joke. Without the growth provided by compound interest, cash loses its purchasing power at an alarming rate. According to Vanguard, if you started investing $2,000 annually in 1960 and invested for 40 years with an 8% annual return, you would have accumulated $513,113. However, your money would buy only $ 112,234 worth of stuff today. Money you make today is worth more than money you make tomorrow, but you have to invest to make the most of it.


Even if you meticulously plan your future, there always will be unforeseen circumstances. You can plan to make a certain amount of money, but don’t forget accidents and injuries, taking time off to care for others, and layoffs and downsizing. You might decide that you’re going to work until you’re 70, but there’s no guarantee an employer will pay your desired salary.

It also doesn’t matter how much money you have coming in if it all goes straight back out. Debt is a major obstacle to enjoying your retirement — at any age. If you pay off credit cards, student loans and mortgages before you stop working, then you can use more of your money to enjoy yourself.

You’ve probably heard that Social Security is in trouble. While it’s true that your benefits may be different than today’s benefits, there is no reason to think you’ll get no benefits at all. It’s best to focus on what you can control, which is what you do with the money — and the time — you have today.

As always, we’ve got your back. — The On Your Own Team End of article insignia



[Any reference to a specific company, commercial product, process or service does not constitute or imply an endorsement or recommendation by On Your Own, the National Endowment for Financial Education or any of its affiliate programs.]