Guest Post: 5 Ways to Prepare for Retirement in Your 20s

by hedy on March 28, 2012

Top Ramen. UK connoisseurs will be aware of an equivalent product: Pot NoodleYou’ve just graduated college and landed yourself a decent paying job. That’s great! Now, it’s time to celebrate and go on a spending spree! Well, not so fast. I know you’re excited to put an end to your 4-year ramen noodle diet, but just because you’re not on a college student budget, that doesn’t mean it’s time to spend, spend, spend. It’s never too early to start planning for your retirement. If you start saving money now and make it a habit, it will be easier to keep this habit throughout your life.
1)    Start Planning Now
It is never too early to start planning for your retirement. Many people end up planning for their retirement just as they are completing their careers. With the rising costs of living and healthcare, this can be a disaster. The earlier you realize the importance of saving, the easier it will be to plan and achieve your financial goals.
2)    Set Realistic Goals
First, you need to decide when you would like to retire. The typical age is 65, but if you plan right, you can retire earlier. You also need to decide what type of lifestyle you want to maintain after retiring. Modesty is always the best policy when setting your retirement goals. It probably isn’t realistic to plan to retire at 35 and live like Paris Hilton. Once you have determined your goals, estimate the money you’ll need to support your desired lifestyle. I’ll explain how to calculate this amount below.
3)    Plan to Pay Off All Your Loans by a Certain Age
Paying off all of your loans while you still have income from your job will leave you with one less burden during retirement. If you are in a bind and must take out a loan, make sure to take out a low risk, low interest loan like an installment loan.
4)    Keep an Eye on Your Credit Score
It is very important to know your credit scores. Knowing if you need to improve your credit can help save you money in the long run. If you have a poor credit score, you will end up paying for it in high interest rates. If you are able to raise your credit score and maintain it, you can take the money you were paying in interest and put it towards your retirement.
5)    Invest Early and Do Your Research
If you learn how to invest your money properly, you can gain great returns on your investments by the time you retire. You should consider long-term, stable stocks as investments. These investments will steadily grow their value over the long term. Many companies offer an employer-sponsored 401(K) that matches part of your contribution. If you are eligible, you should take full advantage of this savings opportunity.
Don’t be afraid to take a little risk while you are young. Higher risk means potentially higher return, but keep in mind, the ultimate goal is to have a chunk of money set aside for retirement. So, don’t go overboard with your risk taking. You should also get sound advice from several different sources regarding your investments because you’re not going to have a clear idea of how to invest after spending 30 minutes online researching it.
How Much Money Do You Need?
Most financial advisors agree that, to maintain the standard of living you currently have, you should plan to bring in about 80% of your yearly income after you retire. We’ll say you earn $75,000 during your last working year before you retire. You should plan to have $60,000 ($75,000 x 80%) each year during retirement to live your current lifestyle comfortably.  Then, take into account a reasonable number of years you can expect to live while retired. If you plan on a long retirement of 20 years, in order to keep your standard of living that entire time, you will need $1,200,000 ($60,000 X 20). This is a very general approach. It does not take into account inflation or interest rates, but it gives you a general idea how much you will need to sustain your standard of living.
Planning early is absolutely crucial to your financial well-being. Retirement is something that you should plan for – instead of just throwing yourself into it. Take the stress out of retirement by planning ahead now, so you can enjoy your life after retirement.

Hedy’s note: I liked this article.  I am very glad I started saving for retirement right after college.

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