As we navigate the exhilarating rollercoaster that is our 20s, retirement is often the furthest thing from our minds. Yet, those who’ve already settled into the golden years of retirement have some sage advice they wish they’d had in their carefree 20s.
1. Not Saving For Retirement As Early As Possible
Kathryn Bird, travel expert and editor-in-chief of the RV and motorhome publication Wandering-Bird.com, has already retired and is now traveling with her RV full-time across the country. In hindsight, she wishes she had started saving for retirement much earlier.
“I didn’t open my first 401(k) until my 30s and missed out on years of compound growth and employer matches,” Bird said. And she’s not alone. Many people fail to prioritize saving for retirement when they’re young. According to Vanguard’s 2021 How America Saves Survey, the average 401(k) balance of Americans ages 25 to 34 was $33,272, with the median only being $13,265.
“Even just socking away a small percentage of each paycheck in your 20s makes a huge difference over time thanks to the power of compound interest,” Bird emphasized. For example, if you start investing just $100 a month from age 25, assuming an annual return of 7%, you’ll have around $239,000 by age 65. But if you start twenty years later at 45, you’ll only end up with $49,000 at retirement age. And if you miss out on those early years, you’ll have to contribute much more later in life to catch up to those who started earlier.
So, the best thing you can do for your retirement savings is to start early. Take full advantage of any 401(k) match offered by your employer and contribute to the maximum limit. If you’re already contributing to a 401(k), Bird suggests opening a Roth IRA for additional tax-advantaged savings. Before making any decisions about your finances, it may be worth consulting a financial advisor who can help project your retirement needs and develop an investing strategy. “The earlier you start planning, the better off you’ll be,” said Bird.
2. Underestimating The Impact Of Inflation
“I didn’t factor in how much prices would rise over decades — everything from groceries to healthcare costs so much more now. Saving a higher percentage of my income back then would have given me more of a cushion,” said Bird.
So, while your nest egg may look cushy today, it might not stretch as far as you think if you fail to account for inflation. For example, assuming your current income is $75,000. In 25 years, you will need $108,821 to maintain the same purchasing power of your current income if inflation averages 1.50% — and $157,033 if inflation averages 3%.
Now, knowing what she knows about the impact of inflation, Bird wishes she would have made budget trade-offs to save more, like skipping the new iPhone or bringing her own lunch to work and putting those savings toward retirement. “Small sacrifices add up,” she said.
3. Not Understanding How Social Security Benefits Work
Many retirees don’t realize that their income during their working years can impact their Social Security benefits. The Social Security Administration takes into account your highest 35 years of work and considers missing years as zero income. So, if you don’t have 35 years of earnings by the time you apply for benefits, your benefit amount will be much lower.
The age at which you begin claiming your Social Security benefits can also affect the monthly payment amount. Though you can start receiving your Social Security retirement benefits as early as age 62, waiting until 67 — your full retirement age (FRA) — can result in higher monthly checks.
“My retirement income is lower because I didn’t work consistently in my younger years and took retirement at 62,” said Bird. Now that she’s settled into retirement, she wishes she had worked more steadily in her early years, even just part-time gigs, to raise her Social Security payments. She also wishes she had put more effort into maximizing her income through education, certifications, and developing new skills during her 20s.
4. Taking On Debt That Doesn’t Build Long-Term Wealth
Anthony De Filippis, director at Amplify 11, a Penrith Chartered Tax Accountant firm, has seen first-hand the regret his clients felt when approaching retirement with too much debt that doesn’t create long-term wealth. While credit cards and student loan debt can be manageable, overextending yourself can “severely inhibit your ability to save for retirement,” said Filippis.
Of course, that’s not to say all debt is bad — taking on a mortgage can be a smart financial move to build your wealth if you have a solid budget in place. The key is to balance your debt and use it as a tool, not an obstacle, to reach your financial goals.
A Little Goes a Long Way
While regret is one of the most painful human emotions, it guides us to make better decisions in the future. By learning from the regrets of those who have already retired, you can take small actions now to make your golden years more enjoyable and worry-free. Whether it’s packing your lunch instead of eating out, reducing your monthly subscription services or simply putting aside a few dollars each month into your investment accounts. Remember, it’s never too early to start planning for retirement and funding the dream life you deserve.
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