SPOKANE, Wash. — While retirement may seem far off for workers in their 20s and 30s, financial experts say this is precisely when people should begin building their retirement savings strategy.
Martha Prestin, CFO of O Bee Credit Union, said as soon as you start working, start saving.
“Keep it simple, especially when you’re young, put away as much as you can, be a little aggressive with your savings because your future self will thank you,” Prestin said.
Smart retirement planning starts with understanding employer benefits. Workers who have access to 401(k) matching programs should prioritize maximizing these contributions, as they represent additional compensation that many employees overlook.
Prestin recommends diversifying retirement savings across different investment accounts that offer various tax advantages. These options include traditional IRAs, Roth 401(k) accounts, and real estate investments.
How much should you contribute? Financial experts suggest saving 10-15% of each paycheck for retirement. While this percentage may seem challenging for those early in their careers, Prestin offers a practical approach for getting started.
Workers can begin with 3% of their paycheck and increase their contribution by 1% each year. This gradual approach helps build the savings habit without creating immediate financial strain.
However, retirement savings should be balanced with other financial priorities. Prestin cautions against putting all available money into retirement accounts without maintaining adequate emergency reserves.
“Making sure that when you’re saving in your 401k you’re also saving outside of it in an emergency fund so that if your car breaks down or something else happens you don’t have to pull from that 401K,” Prestin explained.
This balanced approach protects retirement savings from early withdrawal penalties and ensures workers can handle unexpected expenses without compromising their long-term financial goals.
The retirement landscape continues to evolve, with many Americans working beyond traditional retirement age. Prestin notes this shift creates additional opportunities for workers to boost their retirement savings later in their careers.
Workers over age 50 can take advantage of catch-up contributions, which allow them to contribute additional money to their retirement accounts beyond standard limits.
Prestin said real estate is a viable investment option that can provide passive income during retirement. Real estate investments offer an additional revenue stream that complements withdrawals from 401(k) and IRA accounts.
The power of compound interest makes early saving particularly valuable. Money saved in your 20s and 30s has decades to grow, potentially resulting in significantly larger retirement balances compared to money saved later in life.
The key is getting started, regardless of the amount. Workers who begin saving early, even with small contributions, position themselves for greater financial security in retirement than those who wait for the “perfect” time to begin.
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