6 Reasons to Prep for Retirement in Your 20s and 30s

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If you're in your 20s and 30s, how often do you think about the financial security and stability of your retirement? Not much, I bet, because it's a fuzzy concept with lots of time between then and now.

But it's important that millennials spend some time thinking about saving for the future. Let's walk through a few pieces of good retirement advice for members of Gen Y:

1. Open an Account and Take Advantage of the Match

Many workers have access to 401(k), 403(b) or TSP retirement plans. Determine if your employer offers matching contributions. A match means your employer contributes a set percentage to your retirement account as long as you contribute a specified amount. This is free money on the table.

If you don't have access to a employer-sponsored retirement plan, open an IRA (Roth or traditional) and contribute up to $5,500 in 2015. Or if you're self-employed, you can open a Solo 401(k) or SEP IRA.

2. Understand the Power of Time and Compound Growth

When you're young, time is on your side as far as saving goes. The sooner you start, the less you must put away each month and year to reach those big goals. It's important for you to understand how compound growth is your friend when we're talking investments and savings. Let's look at an example:

If you decide to make an initial investment of $5,000 that's compounded annually at a 7 percent, you'll have earned $350 in interest that first year, for a total of $5,350. In the second year, you'll be earning interest on $5,350: that's your original investment plus the interest you earned. If you earned 7 percent interest again, your total would grow to $5,724.50. Over 10 years, your balance would grow to $9,835.76 -- even if you didn't contribute anything else, thanks to compound growth.

If you were to contribute $5,000 annually to your savings, under those same terms, at the end of 10 years your balance would be $83,753.75. Compound growth is powerful.

3. You Can Guard Against Market Downturns

As a general rule, investing over a long period allows your nest egg to recover from periods of market turmoil. Those who wait until the last second to start investing might not have the flexibility to ride out severe market volatility.

4. Maxing Out 401(k) Cuts Your Taxes Today

Contributions to accounts like 401(k)s lower your taxable income, which results in a lower tax bill every April. While contributing more money to your retirement account means less money in your paycheck, it also means more money in the future, and less of a tax burden in the present.

5. Balance Spending, Paying Off Debt and Saving

If you're struggling with student loan debt, you may not think you can handle saving for retirement on top of your loans. But you can strike balance between saving, investing and paying off debt.

Start by contributing at least enough to retirement to get a match from your employer if you're offered one. After that, focus on creating a debt payoff strategy. One strategy could be to break down your financial goals into percentages. Put 10 percent of your income to retirement savings, then divide the rest of your discretionary income between building an emergency savings account and repaying your debt.

6. Your Retirement Is Up to You

Be prepared to take your retirement into your own hands. If you don't understand something, speak up and ask. Do research or speak with a financial professional to help you figure out a plan to meet your financial goals. Even though you're young, you should be thinking about proper retirement planning. Work out a balanced approach to saving, investing, and paying off student loans (if you have them). Your future self will thank you for it!

Mary Beth Storjohann is a certified financial planner and money coach. She created Nine Steps to Workable Wealth to help you make smart choices with your money.
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