Start thinking about retirement while in your 20s, experts advise

Published: Monday, Dec. 2 2013 12:15 p.m. MST

3. Start saving. Begin saving now and save consistently. You’ll enjoy compounding interest and need to put less in to meet your goals for retirement savings.

Most financial advisers recommend saving at least 10 percent of your income in your 20s, but Tolley said the amount should be determined by how much money you would need if you were 65 and retiring today.

U.S. Department of Commerce Bureau of Economic Analysis reports show that the average personal saving rate as of September 2013 was only 4.9 percent of disposable personal income.

4) Set up Roth funds. Build up some cash and an out-of-sight emergency fund, but also make sure you have some sort of Roth account, whether it’s a 401(k) or an Individual Retirement Account.

Most companies will offer a 401(k) plan, which deducts retirement savings from your paycheck up to $17,500 annually for 2013.

If there’s an option between Roth and traditional, young adults should almost always take the Roth option. With traditional accounts, you have tax-deferred savings. You don’t pay taxes up front, but you are taxed when you take it out.

Assuming you’ll be in a higher tax bracket when you retire, you’ll probably want a Roth account. This means you pay taxes up front and enjoy tax-exempt savings after decades of tax-free growth.

Many employers will match the amount you choose to have deducted for your 401(k), often up to 4 percent. LeVitre suggests workers absolutely make the full match — no question.

“The single highest priority they should be doing is getting the match,” Tolley said. “I’m surprised whenever someone refuses free money, and they need to look at that match on their 401(k) as a bonus, something extra, free money.”

If you don’t have a Roth 401(k) or have already fully funded it, get a Roth IRA. The account is similar to a 401(k) except the limit is $5,500 annually for 2013. If you have a traditional 401(k), get the match, fully fund a separate Roth IRA, and then go back and put money in your traditional 401(k).

“They should get used to and try to condition themselves to make the money disappear. That seems to work the very best,” Lyon said. “Young adults of that age should start to condition themselves to automatic investments that withdraw monthly or biweekly automatically without any kind of effort on their part.”

5. Follow a budget and eliminate debt. To follow a budget, you need to make one first. And no, just trying to spend less than you make does not count as a budget. Financial advisers recommend sites like Mint.com to help you control your spending.

Eliminate consumer debt as quickly as you can. Chip away at student loans, too, but they’re a lower priority because their interest rates are so low.

It makes sense to start on the loans with highest interest rates, but start with the smaller debts you can pay off quickly, if it will help you build momentum. LeVitre recommends snowballing your debt. Work toward paying off your highest priority. Once that’s paid off, take that payment and add it to the payments you’re already making on the next priority, and so forth.

LeVitre suggests cutting up credit cards and using debit cards instead, so there’s simply no way to overspend. If you don’t have debt and are worried about building up your credit, use a charge card.

Like a credit card, a charge card gives you an advance, but you have to pay it back every month. A charge card’s annual fee of $50 to $100 a year is worth the guarantee that you won’t get into any more debt, he said.

6. Consider going back to school. Education is worth the debt, and more education can increase your lifetime earnings.

A study by the Georgetown University Center on Education and the Workforce researched lifetime earnings by degree earned. For 2009, median lifetime earnings were $1.3 million with a high school diploma, $2.27 million with a bachelor’s degree, $2.67 million with a master’s degree, $3.25 million with a doctoral degree and $3.65 million with a professional degree.

“For sure to finish your degree, bachelor’s or master’s,” LeVitre said. “Basically the best thing you can do for yourself is get an education.”

And that goes for educating yourself about finances, too.

Email: madbrown@deseretnews.com