How To Save For Retirement In Your 20s: 7 Steps To Take Right Now

Not only are you establishing yourself professionally during your twenties, but you’re also laying a foundation to grow your wealth, whether you want to save $100,000 or $1,000,000. To do that, you need to slay your debt so you can invest and save for life’s most important goals—from family and homeownership to the retirement lifestyle of your dreams. 

These seven not-to-miss tips can help you—and your Gen Z net-worth-building friends—to start smart and set yourself up for investing success.

Investing in your 20s: 7 moves to make now

Before you dive into the seven tips below for investing in your twenties, take a deep breath. It can feel like there’s a lot of pressure around getting things right out of the gate. But here’s a tip: Life changes and plans can change with it. 

Your goal is to make the strongest moves possible with where your life is today. Then, when your salary, job, geography, and other life bits change, you can change your plan to fit your up-leveled life.

1. Start with a plan (any plan, honestly)

The very first step to plotting out your success is setting up a plan. Don’t worry if it’s not perfect; the goal is to know where you want to go so you can start moving in that direction. Mapping out your short- and long-term goals can help you prioritize monthly spending and saving.

Then, you can build a monthly budget, which should include an emergency fund, says Ross Hamilton, a certified financial planner, chartered financial analyst, and vice president of wealth management at Raymond James. Starting an emergency fund in your twenties can prevent having to tap your retirement savings for unexpected expenses. It can also act as a buffer to help avoid taking on credit card debt.

And don’t worry if your plan isn’t perfect. As life changes, your plan can change along with it.

2. Make managing your debt your top priority

Given that the average student loan borrower graduates with $25,000 of debt from their undergraduate studies, a lot of twentysomethings can feel overburdened with what they owe. That’s why a top investing move today is to slay your debt so you have more cash to invest in the years ahead. 

Here’s what you need to remember about debt: Every dollar spent on debt could have been used to further one of your other financial goals. So the key to future financial freedom is paying down your debt as quickly as possible.  But which debts should you prioritize? 

From a mathematical perspective, you should pay down your “bad” debt first, which are generally debts with interest rates of 8% or higher. You’ll save on interest and fees, and free up money to invest elsewhere. 

Paying down high-interest debt also puts you in the position to take on and manage “good debt.” Debts considered “good” generally have low-interest rates—like mortgages and student loans. Good debt can also be a springboard to improve your earning potential (student loans) or net worth (a home).

3. Start your retirement savings today

Why start saving for retirement in your twenties if you have student debt and are just getting your feet wet in the job market? Because the longer your money has to grow, the more time your money has to make money. And it builds good muscle memory, says Keith Beverly, a chartered financial analyst, CFP, and chief investment officer at Re-Envision Wealth. “Developing that muscle memory when you’re young can put you in a better position when you’re in your thirties and forties,” he adds.

For instance, if you invest the annual maximum of $6,500 in an individual retirement account like a Roth IRA from age 25 to 50, your $162,500 investment would be worth more than $900,000 based on the stock market’s performance over the last 25 years. (See the deadline to contribute to an IRA for this year.)

You can kick-start your retirement savings in two ways: via your employer’s retirement plan or an IRA. 

Employer-sponsored retirement plans like 401(k)s or 403(b)s are a great place to start saving. Under the current rules, you can contribute up to $22,500 annually, plus earn additional “free” retirement money from your employer if they match your contributions (more on those in a minute).  

You can also save for retirement using a personal retirement plan like an IRA. These accounts let you save up to $6,500 each year until age 50 when contribution limits bump up an extra $1,000 per year. No matter which type of account you choose or how much money you have to invest today, saving what you can in your twenties lets you enjoy the power of compound interest as long as possible during your working years. 

4. Don’t miss out on your employer’s free money

To attract and retain talent, some employers offer matching contributions to the money you contribute to your 401(k)—which can offer a serious boost to your retirement savings. Here’s how employer matches work:

Say your employer offers a dollar-for-dollar match up to 3% of your salary. If you contribute 1% of your salary, your employer matches that 1%. But if you contribute 3% of your salary, you get the full 3% match. “Make sure you are contributing enough to at least get the full match,” says Hamilton. 

To see what this means money-wise, here’s how a 3% employer match can boost your savings with a $75,000 annual salary. 

But how much should you try to save in your employer’s plan in your twenties? Experts suggest 15% of your annual income. “If that isn’t achievable, pick a number that is achievable and work up to that goal of 15 percent,” says Hamilton. 

To help boost your savings, some employers let you automatically increase contributions by 1% each year which eases you toward the 15% benchmark over time. 

5. Keep things simple

You’ve got a lot going on in your twenties, and that’s why it pays to keep your investments simple. Using index funds to build your portfolio can help—especially since seasoned professionals can find it difficult to select individual securities, says Hamilton.

Index funds are low-cost baskets of securities built to mimic the performance of a broader market index, like the S&P 500. A single index fund or combination of two to three could quickly set you up with a diversified portfolio and set your savings on autopilot. If you’d rather have some help picking funds, you can always set up your IRA with a robo-advisor. 

Robo-advisors are automated investment platforms that help you build a portfolio tailored to your goals and preferences. With low investment minimums and low to no annual costs, you can contribute the money and let Robo do the rest. Fortune Recommends even has a curated list of the best robo-advisors on the market for a wide range of investor types to ease your search.  

And whether you go the DIY or robo-advisor route, the essential move is to invest regularly—monthly, if possible. Even small amounts create big savings. 

6. Skip the hype

While meme stocks, cryptocurrency, and non-fungible tokens (NFTs) have gained their share of headlines in recent years, your portfolio will likely be better off if you try to avoid the hype. Just because an investment is trending doesn’t mean it should have a significant foothold in your portfolio. 

Investing in your twenties is about building a solid foundation for the decades ahead. Each financial step you take should serve one of your short- or long-term financial goals, which is something that investing trends generally can’t accomplish. Does that mean you can’t carve out a little cash and have some fun with the markets? No, but that cash should be money you’re willing to lose if the gamble doesn’t pay off long-term.

For instance, GameStop—which led the entire meme stock craze—once had an intraday trading price as high as $483 per share. Today, the stock trades at less than $30 per share. 

7. Ask for help

If you need help with your financial decisions as you start your investing journey, there’s zero shame in asking for help.  A more experienced family member or a financial advisor are terrific places to start. A significant plus to asking for help with your finances in your twenties is the chance to build a long-term relationship with an expert you trust. 

While TikTok might have flashy videos, the most trustworthy advice will always come from a credentialed financial professional. Look for certifications like Certified Financial Planner from the CFB Board, or seek referrals to advisors from friends and family. You can also look to robo-advisors for low to no-cost financial planning assistance. Many offer no-cost à la carte access to CFPs for a fixed fee. 

The takeaway

Navigating through your twenties can be like stepping onto a roller coaster. Life’s ups and downs are inevitable, but with a dash of discipline and patience, you can turn this journey into a rewarding ride. Your greatest asset is time, so use the must-make investing moves above to use it wisely.