5 Strategies to Save for Retirement in Your 20s

Thang Truong
Thang Truong
Updated on:

If you’re thinking about retirement when you’re in your ‘20’s, you are a planner. You should be congratulated, because starting to save now, while you’re young, gives you a lot of advantages over those who wait. Those who start saving earlier will be more likely to enjoy a comfortable retirement and the younger you start, the better off you’ll be. Here are five strategies you can employ to get a jump on retirements savings.

Start Saving Early

The table below shows what happens to your savings at age 65 depending on when you start. All figures include a modest $1,000 initial investment, putting aside $100 a month, and assumes a 6% return.

Monthly savingsStarting an age 25Starting at age 35Starting at age 45Starting at age 55

This table nicely illustrates how saving early can impact how much you have for retirement. And we just used a 5% return as our example, which is fairly conservative. In your twenties, you have the luxury of investing in more aggressive stocks. If you get a better return on your investments, the difference could be more.

You can try out with your own scenario using the calculator below. Try it out—it’s fun to play with. You can adjust interest rate, down payment, and the number of years you have to save. It’s also very helpful so you can set goals for your retirement. 


It’s also valuable to get into the habit of saving money while you’re young. Good financial habits you develop now will last you a lifetime. 

Another important thing to note is that once you’ve graduated from college or gotten your first full-time job, you are in an ideal position to save and invest. This is especially true if you haven’t gotten married or had kids yet. You might still have student loans, but hopefully those aren’t crippling. You tend to have more discretionary income in your ‘20’s. Speaking of your full-time job…

>>MORE: Retirement Savings Strategies for High-Income Earners

>>MORE: How to Start Saving for Retirement in Your 30s?

>>MORE: How to Start Preparing for Retirement at Age 40?

Take the 401(K) Option If Your Employer Offers It

Especially if your employer will match at least part of your contribution—it’s like free money. The general rule of thumb is to save 20% of your income, but don’t worry about that. Any amount is better than nothing. The IRS limits your contributions to $19,500 annually for 2020, but even if you can’t contribute this much, some is better than nothing. 

If you max out your 401K contribution, open an IRA account and start putting your savings to work for you as early as you could.

As an example, if you contribute the maximum of $6,000 to an IRA starting at age 25 and do that every year for 40 years, you’ll retire with a $1,134,286 nest egg, assuming a 6% rate of return.

>>MORE: Tax-Free Savings vs. Retirement Annuity: Which is Better For You?

Embrace Risk for A Higher Return when You Still Can

As a millennial, you can afford higher risks in your investment approach. You can invest more in stocks, less in bonds and money market assets. Over the long term, stocks have better returns and the market fluctuations even out. Even if you had invested in the stock market right before the crash of 1929, you would still see an average return of about 10%. Index funds, ETF, and other mutual funds are still great options to invest your savings money in. If you really want to take even more risks by investing in individual stocks, be sure to allocate less than 20% of your total savings to investing in individual stocks.

>>MORE: Should You Invest In S&P 500 Index Through an Indexed Universal Life Insurance (Or IUL) Policy?

You’ll need to weather the risk, and not get upset when you see losses. Over time, you’ll recoup those and reap a better return. And the good news is that you can do all of this from your phone. There are now many investment apps that require a small minimum investment, as low as $5 in some cases. Keep an eye on what fees they charge, but they make investing in stocks and funds, including index, ETF, or mutual funds very easy. Here are a few such apps:

  • Robinhood
  • TD Ameritrade
  • Fidelity
  • Charles Schwabs
  • Wealthfront

They have different pros and cons, but all of them allow low minimums and let you invest from your phone. 

If you’re really risk-averse, you could also balance out between stocks and bonds and stay away from individual stocks.

The important thing is just to get started. You don’t have to pick the next Microsoft or Amazon, you just have to get started in the market. 

Buy Life Insurance When You Are Young and Healthy

Buying life insurance in your twenties gets you premiums as low as you will ever see. If you invest in a permanent life insurance policy such as indexed universal life insurance (or IUL), you’ll have a cash value account that will grow based on market performance since it earns interest rate tied to the performance of S&P 500 index. Having an indexed universal life insurance policy is gaining dual benefits: i.) having permanent life insurance coverage if you need it; and ii.) having an investment account that invests 100% in S&P 500 index funds.

By the time you retire, you’ll have a nice nest egg from which you can supplement your retirement income. The great advantage of an IUL policy is that you can withdraw from this account or take a loan against it and it will be income tax free. Saving on income tax is always a great idea.

>>MORE: How Much Income Tax Do You Have to Pay in Retirement? A Case Study

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Set Goals

Even though you’re only in your twenties, you’ll need a financial plan. Do you want to retire at 62? Buy a home? Buy a vacation home? There are many calculators online that make it easy for you to figure out how much you need to put aside to meet your financial goals. Also, setting goals will make you more accountable to yourself. The best thing about planning for retirement is also the worst thing: Retirement is so far away, it gives you ample time to prepare, but it’s so far away, it’s easy to put it off.

Regardless of your goals, it is always a great advantage to start saving early. The earlier you start, the greater your future is secure.

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Last Thoughts

Saving and investing may seem intimidating, but it’s really not that hard. The important thing is to develop a plan and just start. Having money invested is not money subtracted from your paycheck, it’s money that’s waiting for you for later. Starting to think about retirement savings now puts you way ahead of your peers and secure a great future for you and your loved ones.

Thang Truong

Thang Truong covers small business insurance and small business success at BravoPolicy. He is a licensed P&C insurance agent. Previously, he held product leadership positions at realtor.com, Capital One, NerdWallet, and Mulberry Technology. He holds a MBA degree from UC Berkeley - Haas School of Business.

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