Not many people are too focused on saving for the retirement when they are in their 20s. After all, they probably have more immediate concerns like car loans, credit card loan, student loan, and so on. Financial experts like Kavan Choksi, however, do mention that the sooner a person gets into the habit of saving for retirement, the more time their money has to grow. Starting just a bit early can make a lot of difference in the long run.
Kavan Choksi sheds light on how to plan for retirement in 20s
One may not earn a lot of money in their 20s as they are just starting their career, but they do have much more time on their hands than older, richer people. Saving for retirement becomes simpler and hassle-free when people have time by their side. Even if they still have to pay off their student loans, just saving a nominal amount of money every month for retirement can make a huge difference in their future. Here are a few pointers that can help people to plan for retirement in their 20s:
- Increase savings with earnings: As one progresses in their career, they are bound to get raises and promotions. People must try their best to boost their retirement contribution every time their income goes up. As long as their new contribution is proportionate to their raise, people shall be able to make the best possible use of their retirement savings and income.
- Set up automatic payments to the retirement account: In case an employer provides automatic payroll deduction, people should definitely consider taking its advantage. Before their money ever hits the checking out, it is better to set aside a percentage of the income that goes straight into the retirement savings. By doing so, one shall not be tempted to use that money for something else. If their employer does not provide payroll deductions, people can always choose to set up an automatic transfer from their checking or savings account to an individual retirement account.
- Be aggressive with investments: It would be a smart move for people to put a high percentage of their portfolio in stocks. Even though stocks are among the most volatile investments, they are also known to have an impressive long-term track record. Hence, the more amount of money a person can invest in them, the greater amount of wealthy they should be able to amass. When a person is in their 20s, they shall have a long investment horizon available to them, which makes it easier to handle the ups and downs of the market. Kavan Choksi says that people must particularly focus on creating a balanced portfolio of investments that fits their distinctive time horizon and risk tolerance. As one gets older and closer to retirement, they can move their assets into less volatile investments like bonds.
To plan for the retirement, one should also consider building an emergency fund. Doing so would ensure that a person will not have to depend on credit cards or their retirement savings to meet sudden expenses like car repairs.