What Twenty-Somethings Need To Know About Retirement And Social Security

Thinking about retirement should not be put off -- not even for just a few years until you are “established.” While retirement is something commonly associated with people over the age of 65, planning for retirement should begin decades before.

Regardless of age, it is never too early to plan for retirement. Considering retirement options and understanding the process is essential for any employee, whether he or she is 61, 49 or 21.  Simply put, the sooner you begin saving for retirement, the better.

Here’s why:

While it may seem like a waste of time to consider the contents of your retirement portfolio in your twenties, this is the prime time for establishing a coherent plan. 

The Sooner You Start Saving, The More Time That Money Has To Grow

Whether your portfolio is comprised of pensions, investments, SS benefits or (hopefully) a combination of all three, the longer your money has time to mature the more secure life after retirement will be. 

For example, consider the following two scenarios. Anna and Miller are both 25 and have set up a tax-deferred retirement account. Anna decides to put $3,000 a year into this account starting immediately. She does this for 10 years and then does not put any more money into that account. Miller also decides to put $3,000 a year into his account, but he waits until he is 35 to start contributing. 

After 40 years, Anna (who has now contributed $30,000 of her own money over a 10-year period) has more than $470,000 in her retirement account. Miller, now also 65, has contributed a total of $90,000 over thirty years and has $367,000. That’s more than a $100,000 difference in the end, and Anna only put a third as much money into her account. Simply by saving earlier (giving the account more time to mature), Anna has secured a more stable retirement for herself.

So how does one start?        

Step One: Understand The Basics

Different retirement plans function in various ways. In the same way that all loans are not equal, all retirement accounts are not equal.

• Know what your employer offers in terms of retirement plans, and do not rely only on what your company provides. This program should serve as a supplement and not as a primary savings vehicle.
• Be aware of which accounts are tax-favored.
• Find out if an employer matches employee contributions.
• Do not discredit stocks and bonds. Learn about how these investments can work in the long run.

Step Two: Make A Plan

• Diversify your portfolio. Consider stocks and bonds. Look into not only 401(k)s, but also IRAs. 
• Use a retirement planner. Even the Social Security website has something to offer, and there is a plethora of portfolio advisers who can help.
• Be aware that no plan is set in stone. Your retirement strategy might (and probably should) change as you inch closer to 65. 

Step Three: Reevaluate Often  

• A plan is only as good as its execution. While thoroughly mapping out the ideal retirement plan is essential, it does little to no good if the plan is abandoned after a few years. Keep an eye on your ultimate goal and check in often.
• Be flexible. Hone into what the market is doing long term. The world changes. Look at overall trends and make adjustments if it seems appropriate. Take Social Security, for instance: At the advent of this government program, this single source could secure retirement; now, Social Security plus traditional pensions may not provide enough to offset living expenses for future retirees. If nothing else, it pays to be proactive.