3 Dumb Reasons Not to Save for Retirement in Your 20s

young man with headphones

A young person not saving for retirement | iStock.com

If your plan for retirement is to win the lottery, get in line. Roughly 25% of people between the ages of 20 and 37 say they hope to fund their post-working years with a lotto jackpot or other financial windfall, a survey by the Insured Retirement Institute and the Center for Generational Kinetics found.

You don’t need to be a financial wizard to realize waiting for someone to drop a bag of money in your lap isn’t a particularly sound retirement strategy. Yet many people seem to be doing just that. Roughly one-third of young people aren’t saving for retirement at all, the same survey found. Just as alarming are the 70% who believe they’ll be able to live on just $36,000 a year in retirement. (For reference, current retirees spend about $46,757 a year on average.)

Clearly, a wake-up call is in order. Not only do you need to start saving for retirement, you probably need to be saving way more than you think. Yet millions of people, especially young people, continue to stick their head in the sand when it comes to planning for the future, coming up with any number of reasons why they can’t save. Here are three of the dumbest excuses for not saving for retirement in your 20s we’ve heard, and why you should stop making them.

1. Saving is lame, spending is fun

Young man using credit card on laptop

Source: iStock

You may have seen an article about why you shouldn’t save in your 20s making the rounds on the Internet a few months ago. The gist of the piece was this: Your 20s are a time to have fun and take chances; if you’re saving money, you’re a scaredy cat who’s settling for less. Do your thing now, and the financial pieces will fall into place later.

Do not listen to this advice. Yes, you want to stay out late, travel the world, and quit your job to start your own business. But you should keep one eye on the future as well. Contributing to your 401(k) or IRA may not be cool, but you’ll thank yourself decades from now, when your early savings have mushroomed into a significant nest egg due to the magic of compounding.

Don’t believe us? Take a look at this chart from JPMorgan. If you save $5,000 a year between the ages of 25 and 35 and then never save another dime, you’ll have a little more than $600,000 by age 65. But if you wait until 35 to start saving $5,000 a year and keep it up until you retire at 65, you’ll only have about $540,000, even though you saved three times as much as the early bird who quit saving at 35.

retirement savings chart

Source: JPMorgan

2. My employer doesn’t offer a retirement plan

No retirement plan at work? You’re not alone. Only half of private-sector companies offer retirement benefits, according to the Bureau of Labor Statistics. Younger workers who are hopping from job to job, freelancing, or working part-time might be even less likely to get retirement benefits at work.

Not having a workplace retirement plan definitely sucks, but it’s not an excuse for slacking on saving. If you have earned income, you can put up to $5,500 a year in an IRA for retirement. It’s not as much as you can set aside in your 401(k), but it’s better than nothing.

Opening an IRA is fairly simple. Big mutual fund companies and brokerages like Vanguard, Fidelity, and Charles Schwab offer options for individual investors, as do many banks. Some will let you start an account with a small opening deposit, while others may require $1,000 or more to get started. Before opening an account, make sure you review the fee structure and investment options to make sure it’s a good fit for you. Once you’re set up, make automatic monthly contributions, then sit back and watch your savings grow.

3. I have other financial priorities

man putting money in piggy bank

Source: iStock

Between paying rent, chipping away at student loans, saving for a house, and other financials goals, retirement savings may seem to be way down on the priority list. Debt is an especially big concern for many young people, with 77% of those surveyed by the Insured Retirement Institute saying they were trying to pay down what they owe. Yet just because your financial life is complicated (and whose isn’t?) doesn’t mean you shouldn’t save for the long-term.

For one, as we explained above, the earlier you start saving for retirement, the more money you’ll have overall, due to the power of compounding interest and contributions. But there’s another reason to embrace retirement saving in your 20s: You’ll make it a habit. If you get accustomed to saving now, you’re likely to continue to do it through your working years.

You might tell yourself you’ll start saving in earnest once you hit 30 or get a big raise, but once you reach those milestones, you may find you need the extra money for a down payment, new car, or wedding. Before long, you’re 40 years old and have $0 in your 401(k). Even if you’re just saving a few dollars a month now, doing so will help you get in the savings mindset and give you a strong financial foundation to build on.

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