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How to Start Saving for Retirement in Your 20s: A Simple Guide for Young Adults

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This is a sponsored post written by me on behalf of Navy Federal Credit Union. All opinions are 100% mine.

When you’re just starting out in your career, thinking about retirement can feel like a distant concern. But here’s the truth: the earlier you start saving, the more time your money has to grow.

That’s because of the power of compound interest—a magic ingredient that turns small contributions into a significant nest egg over time. Here’s how you can take advantage of it and set yourself up for financial freedom in the future.

Piggy bank with glasses on stacked books beside a chalkboard with an upward graph and the word "RETIREMENT.

The Power of Starting Early: Understanding Compound Interest

Compound interest is what makes starting early so powerful. When you save money, it earns interest. But with compound interest, you earn interest on both the money you save and the interest that money earns. It’s like a snowball rolling downhill—starting small but getting bigger and bigger over time.

For example, if you start saving $100 a month at age 22, by the time you’re 65, your savings could grow to over $300,000 (assuming a 7% average annual return). But if you wait until 35 to start saving the same amount, you’d end up with just over $100,000. You could triple your savings just because you started a few years earlier!

Check out Navy Federal’s savings goal calculator to show young savers how their money can grow over time, making it easier to set realistic goals for the future.

Easy Ways to Start Saving for Retirement in Your 20s

Getting started might seem intimidating, but it doesn’t have to be complicated. Here are some simple steps to start saving for retirement even if you’re on a tight budget:

A paper with "Retirement Plan" written on it, surrounded by colored pencils, a calculator, and graphs depicting rising bars.

1. Take Advantage of Employer-Sponsored 401(k) Plans
If your employer offers a 401(k) plan, enroll as soon as you can. Many employers offer a matching contribution, which is like free money for your retirement. Even if you can only contribute a small percentage of your paycheck at first, you can increase it gradually over time.

2. Open an IRA (Individual Retirement Account)
If you don’t have access to a 401(k), consider opening an IRA. A Roth IRA is a great option for young adults because your contributions are made with after-tax dollars, which means your money can grow tax-free. And when you withdraw in retirement, you won’t owe taxes on those earnings.

In fact, I recently helped my youngest daughter open her first Roth IRA. Since she’s only 17, we had to navigate a few extra steps to set it up—like having a custodian on the account until she turns 18.

But the benefits are worth the effort, giving her a head start on growing her savings tax-free. It’s important to know that a minor needs to have earned income to contribute to an IRA, so things like a part-time job or side hustle can make them eligible.

3. Automate Your Savings
One of the easiest ways to build the habit of saving is by automating your contributions. Set up automatic transfers from your checking account to your retirement account each month. This way, you won’t be tempted to spend the money, and your retirement fund will grow steadily over time.

4. Start Small, Then Increase Over Time
It’s okay if you can’t contribute a large amount right now. Start with what you can afford, even if it’s just $25 or $50 a month. Over time, as you get raises or your financial situation improves, you can increase your contributions.

Why It’s Worth the Effort: Long-Term Benefits of Early Saving

Saving for retirement might feel like a sacrifice when you’re young, but the rewards down the road are well worth it. Here’s why:

  • More Flexibility Later: Starting early gives you a head start, which means you might have the option to retire early or work part-time in your later years.
  • Less Stress: Knowing that you’ve built a solid foundation for your future can give you peace of mind and reduce financial stress as you get older.
  • Taking Control of Your Future: By saving now, you’re taking charge of your financial future and ensuring you won’t have to rely solely on Social Security or others to support you in retirement.

What I Learned from Raising Five Savers

As a mom to five children—ranging in age from 17 to 27—I’ve seen firsthand how important it is to build good money habits early. Our family has always been careful with money, especially since I spent many years as a stay-at-home mom. I believe that experience helped my kids understand the value of saving and making smart financial decisions.

But they didn’t all show interest at the same time. Some were curious about saving and investing in their teens, while others took a little longer to come around. I never pushed them—I waited until they came to me for advice. That way, they were truly ready to learn and take ownership of their financial journeys.

My own experience with starting to save early made a huge difference in our family’s life, providing security during tough times. I’m so glad I could pass that along to my kids and watch them take those steps toward a secure future.

Breaking Down Common Misconceptions

When it comes to investing, many young adults hesitate to start due to a few common misconceptions. Let’s tackle some of those myths and see how easy it can be to get started:

Misconception 1: “I Need a Lot of Money to Start Investing”
It’s easy to think that investing is only for those with a lot of extra cash, but that couldn’t be further from the truth. You can start with as little as $25 or $50 a month. Over time, those small contributions can grow into significant savings, especially when you take advantage of tools that let you start small and build up your savings with automatic deposits.

For example, financial institutions like Navy Federal Credit Union offer certificates and savings options that make it easy to start small and grow your savings over time. Starting with what you have now allows you to develop good habits early, and even those small amounts will benefit from compound interest.

Misconception 2: “Investing is Too Complicated for Me”
The world of investing can seem overwhelming, with all its jargon and options. But it doesn’t have to be.

Many financial institutions offer online resources that break down the basics in simple terms, helping you understand key concepts like risk, diversification, and how to choose investments that match your goals. Check out Navy Federal’s Investing Basics to get a clear overview of how different investment options work and how you can start building a portfolio that aligns with your financial goals.

Some also provide access to robo-advisors—automated investment services that manage your portfolio based on your comfort with risk and your financial goals. This hands-off approach can be ideal for beginners who want to start investing without having to make every decision themselves.

Misconception 3: “Investing is Too Risky”
While all investing carries some level of risk, not all investments are the same. The key is to find a balance that fits your risk tolerance and long-term goals.

For young adults, time is on your side, allowing you to weather short-term market fluctuations in favor of long-term growth. Tools like investment calculators can help you explore different scenarios and see how your contributions might grow over time.

These resources can be a great starting point for understanding what level of risk you’re comfortable with before you start.

It’s Never Too Early to Start

Building the habit of saving for retirement early is one of the best financial decisions you can make. The earlier you start, the more time your money has to grow.

Even if retirement seems far away, every little bit you save now can have a huge impact down the road. So, set up that retirement account, automate your savings, and watch your future self thank you!

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