Saving for Retirement in your 20s

By: Lily Mei

It’s easy to understand why retirement plans don’t loom in mind to most 20-year-olds. Most of them are more concerned about kick-starting their careers, not ending them in the long distant future.

But the fact that if you’re young and start saving it gives you the leverage to be extremely rich in your retirement years. That’s because when you’re in your 20s, you can invest relatively little for a short period and wind up with far more money than someone older who saves much more over a longer period.

Consider this scenario: If you start saving for retirement at the tender age of 26, putting away about $1500 a year for just 45 years, you’ll have around $500,000 at the end with annual earnings of 8%. Now, let’s say you wait until you’re 36 to start saving. You put away the same $1500 a year, but for 30 years and earnings grow at 8% a year. When you’re 66 you only have about $200,000 less than half of what you could have if you started saving earlier.

Sources:

http://www.oprah.com/article/money/personalfinance/20090122_expert_retirement

http://www.money-zine.com/Financial-Planning/Retirement/Retirement-Planning-in-Your-20s/

http://www.usnews.com/usnews/biztech/articles/060428/28tips_retirement.htm