In a perfect world, we’d all put away 15 percent of our salaries annually for retirement as soon as we hit our early 20s. Saving that much so early would put us in good shape financially by the time we turn 65, experts say.
But we don’t live in a perfect world. So what is a struggling 20-something supposed to do in a tough job market and growing student-loan balances, among other hurdles, in order to save money? Maria Bruno, a senior investment analyst in Vanguard’s investment counseling and research group offered these insights:
Save something, anything
Even if you get a full-time job out of school, saving for retirement can be a challenge because you have demands on your paycheck, from building up an emergency savings fund to paying rent.
“We talk about saving 15 percent as a good solid benchmark,” Bruno said. “But if you can’t afford to do that right away, the next best thing is to put together a plan for how you can increase your savings rate.” Save ANYTHING, and increase that percentage by one point each year. So, if you can afford to put aside 5 percent now, you’d save 6 percent to 7 percent next year, 8 percent to 9 percent the following year, and so on.
Get help from tax credits
If putting away 5 percent of your income is a stretch, you might be able to take advantage of certain tax breaks to make contributions more affordable.
Contributions to a 401(k) plan or other employer-provided retirement plan are made before tax. So, if you earn $35,000 per year and save 5 percent, you would contribute $67 per paycheck (if you’re paid every other week), but because you save on taxes, take-home pay is reduced by only $57. (If you pay state income taxes, the benefit would be even greater.)
You can also open your own Individual Retirement Account (IRA). There are options out there, the important thing to remember is to put away something, anything. Retirement will be here before you know it.