MoneyLife

How Much To Save For Retirement in Your 20’s

By Cameron Walch
investing for retirement

Can you imagine running out of money when you are retired at 85 years old? What would you do? This would be a devastating reality to wake up to, but the good news is that you can start saving now to prevent this from ever becoming a reality!  

The most important and essential time to save for retirement is while you are in your 20s. But how do you know if you are saving enough money? And how can you set yourself up for a comfortable retirement? We’ll explain everything!  

Why should you begin saving for retirement early?

Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” Compound interest is interest on interest. 

With compound interest, you end up making money off of the money you’ve already made from interest. As time goes on, you will make more and more money regardless of whether or not you are saving more and more money.

This is the beauty of compound interest. Starting young is the greatest advantage.

4 ways to kick-start your retirement goals

A savings account is not the only way to boost your retirement nest egg. Many retire and many find different ways to utilize various accounts to save for retirement. 

Below are four different ways to start saving for retirement including employer 401(k)s, Roth IRAs, HSAs, and MoneyLion investment accounts. Each of these options have different tax advantages and unique purposes behind them. 

Financial planners are a big help when trying to find the best way to save for a comfortable retirement. You can also check out this website for other tips and tricks. 

1. Employer 401(k)

Many employers will offer a 401(k) as part of their employee compensation packages. Oftentimes, employers will match up to a certain percentage. 

This can be considered a raise if you take advantage of it. Using the salary information above, if you make $51,000 and contribute 15% while your employer matches up to 5%, then your employer will contribute $2,550 to your retirement fund each year. Over the course of 40 years, these contributions will add up to over $100,000, and that’s not even including the compound interest you’ll receive! 

Make sure that you understand your employer’s retirement plan. If you are not currently contributing money to an employer-sponsored 401(k), then reach out to the HR team. They will be able to assist you with setting up your contributions. 

It’s important to recognize that there is a contribution limit. Make sure you max out your contributions to really kick your savings into high gear! 

2. Roth IRA

A Roth IRA is different from a traditional IRA. The money that is deposited into a Roth IRA is taxed when deposited rather than being taxed when it is withdrawn. This is beneficial for those of you who plan to be part of a higher tax bracket in retirement. 

The reason for this is that you won’t have to worry about paying taxes on your retirement money because it will have already been taxed. If you have $1 million in your Roth IRA, then you will be able to withdraw $1 million instead of a taxed portion of your total Roth IRA amount. 

Some employers may offer Roth IRAs through their sponsored plan, but others might not. Either way, you can set up a Roth IRA through a brokerage. Contribution limits and income limits both apply to a Roth IRA.

3. Health Savings Account

Health savings accounts (HSA) are an awesome tool to use for retirement. An HSA is an account that allows you to put money aside, pre-tax, to pay for medical expenses. Your money is not taxed when you need to use it for qualified medical expenses. HSAs can help pay for prescriptions, copayments, and even deductibles. 

These accounts can be used before retirement if necessary. The accounts mentioned above come with a penalty if withdrawn early. HSAs have no penalty for early withdrawal, unless the funds are being used for non-medical expenses.

Employers often offer these plans to employees, but you must be enrolled in a high-deductible health plan. You can also find these plans outside of your employer if they do not offer it themselves. 

Make sure to save your medical receipts for your records. You can max out your contributions on an HSA to save even more.

4. MoneyLion investment account

The MoneyLion investment account is great because it does not have to be sponsored by your employer. You can open a MoneyLion investment account all by yourself. It doesn’t come with any management fees, and there is no minimum balance requirement. 

The MoneyLion investment account will match your portfolio to a risk tolerance that aligns with your preferences. You can also have your contributions withdrawn from your account automatically. 

The MoneyLion investment account comes with the most flexibility and can be a great tool for first time investors. In fact, over 90% of MoneyLion customers are first-time investors.

What is your retirement dream?

Retirement is supposed to be a calm, relaxing time in your life. Do not complicate it for yourself by not saving enough money. Start early by saving when you’re young! With these tools at your disposal, you can set yourself up to have the retirement experience of your  dreams!

It all starts with signing up for a MoneyLion investment account. Let us help you figure out which investments are worthwhile. For only $1 per month, MoneyLion can assist you in preparing wisely for retirement! 

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