When you are in your 20s, retirement is a lifetime away. So why do young adults already find themselves stressed about reaching financial independence?
A poll from Credit Ninja revealed some very interesting insights, including certain states where retirement worry starts as early as 19.
In the poll of 3,000 people, the main result was that the average American began to stress about their retirement at 25. This varies by state, with South Carolinians and South Dakotans starting by 19 and Arkansans staying calm until their early 40s.
The most unfortunate result of the poll was how intensely the pandemic has affected retirement outlooks. One in three polled have had to push back their retirement timeline since the start of the pandemic, and more than half expect a need to work part-time in retirement to get by.
Listen to your elders.
An interesting addition to this poll was the request to late Gen Xers and Baby Boomers to give financial advice to the younger generations.
The advice they gave aligned perfectly with what a financial advisor would encourage young people to do: start a retirement fund in your 20s, build good credit, start an emergency fund, and educate yourself.
Since pensions are mostly a thing of the past and Social Security is in jeopardy, it is more critical than ever for adults early in their careers to get set on a path to success before it’s too late.
What you should do.
If you’re in your 20s or even 30s, the first thing to do is to get started with some basic financial literacy education and to build true financial plans sooner rather than later. If you want to reach financial independence without the need to panic along the way, the time is now. You have started to think about the future early enough that time is on your side. Retirement goals are reachable with proper planning, so don’t wait to take inventory and make sure you’re on track.
So listen to the advice of the older generations, and take these important steps if you haven’t yet:
1. Start a retirement fund—and understand how it works.
If you’re employed at a company that offers a 401(k) program, start contributing now. If your company also offers to match your contribution, make sure you’re putting enough away each paycheck to reach that full match. This is free money and will help you reach your goals faster.
For 401(k) programs with matches, make sure you understand your vesting schedule. While some companies offer an immediate vest—meaning as soon as their contribution hits your account, it’s yours—many will stagger their vesting schedule over a few years. For example, if you have a five-year vesting scheduling, the employer contributions in your 401(k) won’t be truly yours for five years. A percentage of this contribution will be granted to you each year until you reach that five-year mark. Leaving a job before your matched contributions are fully vested can result in a financial loss of potentially thousands of dollars.
If you are not part of a company that offers a 401(k), don’t worry. There are options to help you get started on your retirement savings as well. Look into options like Traditional IRAs and Roth IRAs that can be opened independently at many financial institutions.
2. Build a good credit score.
Understanding credit and how it works is something that should be taught in schools but often isn’t. Having a good credit score is vital for financial success, as it grants you lower interest rates on loans, better terms on mortgages and leases and gives you the ability to borrow funds when you need them most.
If you have not yet started building your credit, a good first step is to open a starter credit card and use it like a debit card. Only spend what you have and pay it off in full each month.
For those looking to improve their credit, set all your scheduled payments—rent, car payments, utilities, etc.—to automatic payments so that you eliminate the risk of a missed or late payment.
3. Grow an emergency fund.
We’ve all been told to expect the unexpected. But as an adult, the unexpected usually comes with a large price tag.
Having an emergency fund, which is generally enough money to cover three to six months of expenses saved in an easily accessible bank account, means you can handle a situation like a period of unemployment or a broken dishwasher without going into credit card debt.
If you don’t have one already, open a savings account and try to put away 15% of your income. You’ll see your savings start to grow, and as you make more money, you can continue saving at the same rate for increased growth.
4. Educate yourself.
Financial literacy education is crucial to financial success. Seek out resources from reputable sources that teach about the subjects you may not understand. For help, I’ve published articles on books and podcasts that I recommend everyone look into.
The only way to alleviate the panic surrounding retirement is to prepare for it. Start early and take it seriously. You’ll thank yourself in 40 years when you’re living your dream retirement.
And remember, it’s never too late to get help with a financial plan. Find an advisor that can work with you throughout your career and offer personalized advice to help you reach your goals.