The 4 Easiest Steps You Can Take in Your 20s to Prepare for Retirement

When you are just starting your career, retirement It seems like there is something too far in the future to really worry about. Just the thought of getting married, buying a home and starting a family already sounds like a financial mountain, and more within your realm. Throw in student loans, and it may seem like you’re squeezing everything possible out of pocket — but it’s not.

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To set yourself up for the best possible retirement, there’s no time to lose. The longer you wait, the more money you will get out of pocket instead of compounding interest. Here are some tips to get you started on your retirement planning journey.

Know What a Retirement Account Really Is

Unfortunately, high school and college prepare you for a job, but not one of the most important benefits a job can provide — a 401(k) or retirement account.

Retirement accounts are given special treatment by the government and are the only financial instrument to have any kind of preferential benefit. Why? Because the government is encouraged to prepare people for retirement so that they are less dependent on them in the future.

Compound Interest Perhaps the most important concept to understand for retirement planning in your 20s. This is because even a small amount can have a big impact, the longer it is invested. Let’s say you invest $1,000 in your first year of working in a 401(k) at age 25, and let’s say it has a rate of return at 7 percent over 10 years. In 10 years, at age 35, that money would double to more than $2,000. As you get older, throw in a few years of high returns and a few years of increasing contributions, and you easily outgrow it.

The importance is that even a small amount can pay off because you have a luxury that most other people don’t have – time.

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View company mail

Make sure you find a company that matches your 401(k) contributions when you’re looking for a job. Especially in your 20s, it maximizes your investments with less risk of your own. Most companies match anywhere between 2%-4%. Let’s say you put in only 4% of your salary when you start out as a small beginner – this means that your company matches 100% of your contribution and it is as if you were making your own salary. Doubling the investment without pulling from it. It’s free money, and especially in your 20s, the power of compound interest only takes it further.

set up automatic payment

Setting up automatic payments now will prepare you for the habits you need to ensure continued contribution and long-term success in the future. An automatic contribution to your retirement account, no matter how small, is one of the best ways to start retirement planning, where compound interest is the name of the game. Building is the focus in this phase, so make sure you get what you can afford to invest.

Cover the Least Fees on Your Retirement Account

All retirement accounts have fees, even if they are half a cent. Make sure you at least cover the amount of the fee so that you have active principal invested and are not just paying account fees. Contributing 4% of your monthly salary will usually cover you here, but it’s important that you find out who services your 401(k). Once you know which company your 401(k) belongs to, like Fidelity or Charles Schwab, it’s a good idea to walk you through the process of changing investments and explain their fee structure and who pays them. Let’s set up a call with one of their representatives.

keep this in mind

When you start planning for your retirement, remember the old saying by investor Warren Buffett: “Don’t save what’s left after you spend, spend what’s left after you save.” When applying for a job or looking for a new one, consider what your salary will be after 401(k) contributions and budget from there — not just what it will be after taxes.

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This article originally appeared on GOBankingRates.com, The 4 Easiest Steps You Can Take in Your 20s to Prepare for Retirement

The views and opinions expressed here are the views and opinions of the author and do not necessarily represent those of Nasdaq, Inc.

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