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Celebrating Over 21 Years of Excellent Service

Retirement Planning For Young Adults

While retirement has always been treated as a time to “hang up your boots and do what you like”, modern retirees are taking this more seriously. Young professionals planning their retirement nest egg want to enjoy a comfortable and secure future, where they can do what they like without worrying about money.

However, they face some key challenges along the way. For instance, they are usually saddled with heavy student debt, as well as fluctuating incomes and a tax disadvantage if they’re single and childless. If they decide to start a family, they may get some tax benefits, but a wedding, childcare, education, housing and other expenses add to their debt.

How Can You Start Retirement Savings? 

If you’re facing any of the challenges we discussed above, here are the Top 10 Retirement Planning Tips for Young Adults that will help you save for the future:

  1. Open an IRA Now:
    If you’ve started earning, whether through a business or a job, start saving in an IRA. Not only do you get tax advantages when you start contributing to the retirement account, but also more time for your money to grow.
  2. Understand IRA Types:
    Different IRAs give you different benefits, so open one that matches your needs. The most popular options are traditional and Roth IRAs, but consider a SIMPLE or SEP-IRA if you’re self-employed or a business owner.
  3. Compare the Tax Benefits:
    Traditional IRAs allow you to make pre-tax contributions, so you only pay taxes when you make a withdrawal. On the other hand, Roth IRAs are funded with post-tax money, but withdrawals are tax-free.
  4. Check for Employer Plans:
    If your employer offers a 401k plan for employees and you meet the eligibility criteria, join it. Make the maximum contribution that your employer will match since that’s free money going into your retirement fund.
  5. Automate Your Savings:
    Make saving a habit instead of a luxury, and take temptation out of the picture. Set up a direct debit for your retirement savings, so a certain percentage of your earnings or a fixed amount goes into it every month.
  6. Contribute More Every Year:
    If you can’t max out your IRA contributions right away, at least put in the maximum amount you can. Increase this amount every year, as your income starts going up, so your nest egg will grow that much faster.
  7. Pay Off Your Debt:
    Debt repayment should be a major financial priority since it reduces the amount of money you lose in interest payments. Start with the most expensive debt first, and refinance whatever you can with lower-interest vehicles.
  8. Start Investing:
    Returns on investments will account for a larger chunk of retirement income than your retirement savings and interest alone. Diversify your portfolio to make the most of long-term investments as well as short-term ones.
  9. Rollover Your 401k:
    When you change jobs, rollover your 401k money into your new employer’s plan or an IRA. Cashing out this fund will lead to penalties and taxes if you’re under the age of 59½, but a direct rollover will not cost you anything.
  10. Educate Yourself:
    Stay up-to-date with the latest rules, regulations and opportunities, so you can make smart decisions for your future. If you need help, consult a financial advisor for guidance on investments and retirement planning.

It’s not impossible to start saving for retirement, though it may seem that way when you’re just beginning to explore the world of money management. In fact, starting early is the best move you could make. It gives compound interest more time to work its magic on your money, so you have a substantial nest egg to fall back on when you retire.

If you need help with a self directed IRA or any other investment advice, we’re here to help. Contact the financial experts at Self Directed Retirement Plans now!

FAQs

Which retirement plan is best for young adults?

A Roth IRA is considered one of the most advantageous methods for young individuals to save for their retirement. A Roth IRA is funded with after-tax money, so when you begin withdrawing funds after 40 years, you won’t be required to pay taxes on it. (This isn’t the case for 401(k)s or traditional IRAs.)

Is 401k or Roth better for the young person?

Consider a Roth 401(k) if you’re young and certain that you’ll be able to increase your salary and move up to a higher tax rate in the future. using this option, you can contribute your retirement savings using after-tax money and possibly enjoy tax benefits when you eventually retire and withdraw the money. A Roth 401(k) may be a good option for your long-term financial planning, taking into consideration your predicted future earnings and tax situation.