Retirement Planning By The Decade- Your 20s

Each decade of adult life brings with it unique challenges and opportunities when it comes to retirement planning.  When you are in your 20s and maybe even into your early 30s, retirement may seem too far into the future for you to give it your attention now.  Even so, the best time to begin planning for a financially secured and successful retirement is now, as this really is a lifetime process.  It is never too early to start planning for the rest of your life. Starting early allows you to take advantage of time, compound interest and long term gains.  It also creates good spending, saving and investment habits that can help you to achieve the financial security needed to retire your way.  You also do not know how far off retirement can be bearing in mind that retirement can also be as a result of disability, caused by an injury or health related problems.  This can interrupt your future earnings and saving ability.

Perhaps you are thinking that you have just graduated, with student loan to pay, an entry level paying job, and just trying to make ends meet while still having fun.  How then do you start to plan for retirement, when the time just doesn’t seem to be right?     The good news is you are in your 20s and have over 40 years to accumulate the funds you needs for your retirement lifestyle. So if you start by saving just about any amount that you can afford to set aside, you will see yourself reaping the benefit in the later years, with tens of thousands of dollars in savings.

 Let us look at what your checklist should be like to guide you on the exciting adventure as you plan your retirement future:

1.       Start Saving: Begin with your employer sponsored superannuation fund.   Take advantage of the plan offered by your employer and ensure that you are saving the maximum allowed.  This money is automatically withdrawn from your salary so it is easy and convenient means of saving.   If your employer does not provide this benefit then look at Individual Retirement Schemes, which will allow you to save for your retirement.  Once again ensure that you are saving the maximum amount allowed under law.   Don’t just stop there; set aside funds in other investment vehicles, first looking at those that offers tax free returns to maximize your earnings.   You also need to create a fund, which will allow you a financial cushion in case of an emergency, and thus preventing you from dipping into your retirement savings.  You should have 3-6 months of basic living expenses in short term savings set aside in your emergency fund.

2.       Control your Spending: Create a budget and work with it.  Track your spending so you can understand what you are spending on and how you make additional funds available that can go towards your retirement savings.    Ensure that you pay yourself first, i.e. set aside the percentage you have decided on from your earning, as this is where the bulk of your savings will flow from to your investment funds.

3.       Educate yourself: Make sure you take the time to understand the key concepts of retirement planning.  In your 20s, the two main key success factors are regular contributions and asset allocations.  As you move into your 30s onwards, you will need to understand what are the key success factors required to allow you to continue on the correct path for you to achieve your goals.    Learn about the investment options available, the risk associated with each and when is the best time to take advantage of each and at what level of funding is required to achieve the best results.    Make sure you understand your employer sponsored Superannuation Scheme or your Individual Retirement Scheme and the benefits that you can expect on retirement.

4.       Use your borrowing power wisely.   Keep your debts under control; limit your credit card debt.   Pay down high interest debts as quickly as possible and as you reduce your debts use the available cash to increase your investment for your retirements and other goals.   Consider using borrowings to finance investments.   Ensure that the interest paid on these borrowings does not exceed the interest earned on the investment purchased, thus allowing your portfolio to receive gains in the long term.   

5.       Determine your Retirement objectives.   What do you want to do when you retire?  In your 20s these do not need to be permanent goals as you may want to make changes as your life evolve, but you should at least have a general sense of what you want to achieve.   You will need to determine whether or not you expect to work during retirement, and if yes will it be part time or will you begin a new full time career.    Other items you may which to give consideration to are:  Will you own your own home and if yes will you still have mortgage payment when you retire.  What will your lifestyle be like?  Do you want to travel extensively, pursue hobbies and what are the costs associated with these activities?   Remember the financial choices you make now will impact on your retirement lifestyle.

6.       Estimate when you will retire.  Whether you want to retire early or work until you are 75 years of age, you will need to look at how to fund the remaining years, when you no longer have a source of income from employment.  The earlier you begin to save towards retirement the earlier you can retire as you would have earn soon rather than later the funds you need to support your lifestyle.

7.       Evaluate.   Along with a professional, ensure that you evaluate your retirement income resources on an annual basis.  This will allow you to make sure you are on track and can make any changes required to your investment portfolio or retirement plans as early as possible to maximize the benefits that can be gain.    Evaluation will also be required as you move into another decade of your life and life-changing events occurs.

8.       Safeguard your financial future.    Even if you are saving regularly, spending wisely and investing strategically, you are not adequately managing your retirement investments if you have not taken steps to protect your retirement and other assets as well as, your earning power, yourself and your family with insurance and a will.   These financial instruments will help you to avoid the negative effect that can occur on the event of losses associated with accidents, illness, fire, theft or death.   Bear in mind that the younger you are, health and life insurance coverage are usually more cost effective and hence it suits you have purchase these in your 20s.

9.       Seek Professional Advice.   As you go through the checklist and begin to implement some of the action items seek professional advice.     Speak with your financial advisor, your attorney, your retirement consultant to name a few, so that you can receive the assistance you need to set retirement goals and develop an appropriate strategy for reaching each of them.

10.   Stay on track.   You are starting your retirement planning when you are young but it is an ongoing process and therefore you need to stay on track on to yield the desired results.  You can do this by managing your finances wisely, sticking to your budget, periodically reviewing your retirement goal and ensure they are still applicable; adjusting your saving and investment plans as needed, increasing your retirement savings as your income increase and updating your insurance coverage to reflect the changing stages of your life.   Remember at all times, your retirement saving is not extra cash for a vacation, to fund educational expenses and definitely not an emergency fund.   Don’t think about withdrawing from it or borrowing against it; just pretend it is money you don’t have and you will be better off in the long run.

Make the move today; your retirement future is in your hands.  The sooner you get started, the longer your money has to grow and work for you.   By beginning the planning and investing now, you will soon be well on your way to achieving your retirement goals.