Money Tricks for 20-somethings to save for Retirement  

Women live longer than men live, an average of five years longer. Women will live an average of 81.2 years to a man’s 76.4 years. It is reasonable to assume, therefore, that women will live longer in retirement than men do, and they will need more retirement savings. However, many women still earn less than men do, and some take months or years off to raise children or to care for aging relatives. This reduces the funds a woman has available to save for a rainy day, let alone for retirement.

Lack of financial literacy often increases the conundrum. Most women over age 30 had minimal, if any, financial literacy education in school. They didn’t learn that they could have achieved greater growth on the savings they accumulated between the ages of 20-30 years old than they will reap from their savings after 30.

Despite being in their retirement investing prime, many women in their 20s think more about how to pay their student loans or where to go for happy hour with their friends, than they do about retirement. Retirement is for old people, right.

Begin Early
Retirement saving is for people who want to retire someday. The earlier you plan, the greater your benefits will be. Lower wages require that you save a greater percentage each month for retirement; 3% of $100,000 ($3,000) is greater than 3% of $78,000 ($2,340)–based on the statistic that women earn an average of 78 cents for every dollar a man earns. The younger you are when you begin, the more time you have on your side to build a nest egg to carry you through a retirement that could last 20+ years.

Start Small, but Start
If you were to save just $20 per week beginning at age 22—about how much you spend on your morning coffees–with only 5% annual return, you would still have a nest egg of $131,913 after 40 years. That is not taking into account your ability to contribute more than $20 weekly as your career takes off and your income increases. Try the math yourself with this simple calculator. Even if you cannot contribute the ideal 10% of your income on day one, you absolutely must start somewhere. Just be aware that waiting until “someday” when you have paid off your student loans, your wedding is over, or you no longer have a car payment, is not a sound strategy. Those days will come and go, and other bills will have taken their place.

Take Advantage of Free
Employer sponsored plans 401(K) or 403(B) with matching funds are the perfect place to start. Matched funds are the free money that many employers offer to encourage their employees to save money. A bonus to most employee-sponsored retirement programs is the employer deducts the money directly from your earnings and deposits it into your retirement account, along with any matching funds. If you do not have to think about the money, you might not miss it as much.

With so few employers offering pensions anymore, even government pensions have been cut or eliminated, and Social Security benefits potentially facing cuts, it is more important than ever for women to create additional retirement plans.

Maximize the Match. If you employer contributes $.50 for every dollar that you save for retirement, (up to a specific percentage, often 6%) that means when you contribute $1.00, the matched funds make your investment $1.50 up to 6% of your income. On a $50,000 salary, your employer will contribute $1,500 when you save $3,000, netting you $4,500 per year in your retirement account.

Realize tax benefits. Your pre-tax contributions to your retirement account lower your taxable income so you pay less income tax.

Plan in Reverse
If you are unsure how much to aim to sock away for retirement, you can plan in reverse. Calculate how much money you would likely want to have to live on in retirement, then figure out how much money you will need to save each week in order to achieve that end goal. If you want to retire with $1,000,000, how much will you need to contribute each month in order to achieve your goal? Many financial institutions provide free calculators on their websites that can help you figure out your goal such as this one from Vanguard.

Max out Your Accounts
If you are able, max out your contributions to each retirement account. The IRS determines the maximum amount you can contribute each year for each type of retirement account you have. For 2015, the amount you can contribute to your 401(k), 403(b), and most 457 plans is $18,000 if you are under age 50. The max you can contribute to a Roth IRA or Traditional IRA for 2015 is $5,500. If you can maximize your 401(K) investment, you may then contribute more to the Roth or Traditional IRA.

Increase Your Contributions  
Each year, or as you receive raises, increase your contributions to your retirement accounts.

Take Risks  
Know your risks, but take some anyway. Diversify your retirement portfolio early. The younger you are, the greater the opportunities you enjoy to take financial risks and still have time to recover if the market doesn’t respond as you planned.

You have plenty of time to save for retirement, it is not right around the corner; however, you will be there before you know it. If you start in your 20s to save, you will have to spend less time in your 30s, 40s, and 50s making up for lost investing time.