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Why You Can’t Snooze on Retirement Planning in Your 20s

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Before You Read, Lower Your Student Payment

It’s that quick & easy — really. Our free tool checks a network of top refinance lenders and shows you options in one easy chart.

Checking rates takes 2 minutes with no impact on your credit
Federal & private loans are eligible
No maximum loan amount

Planning for retirement. Could anything be less exciting?

It’s far away. Money’s tight. You’re busy. You have a million other worries.

But do you know what is exciting?

Lounging on the beach. Traveling the world. Having financial freedom. Relaxing in your dream home.

Ready for the unfortunate news?

To make that fun future a reality, thinking about retirement is a necessity — as early as possible.

Even though you’re young and your whole future is ahead of you, it’s essential to start investing in your retirement sooner rather than later. Much sooner.

Here’s everything you need to know about retirement planning in your 20s.

First, why is it so hard for 20-somethings to retirement plan?

It all comes down to expendable cash.

Well-paying jobs are hard to find, and people in their 20s are just beginning their careers. Many can only find part-time jobs with no retirement benefits or incentives. Plus, housing costs are high, starting a family is expensive, and there are plenty of other bills to pay. Oh, and let’s not forget the ridiculous amounts of student loan debt.

The average 20-something makes less than $50,000 per year, has a total of $1,900 in average monthly expenses, and has an average student loan debt of $29,650.

Only 23% of 20-somethings contribute over 15% of their income to savings — with 14% contributing nothing at all — and just 46% are putting money away for retirement.

Sadly, planning for retirement often takes a back seat to other life needs for people in their 20s — especially if they don’t have worthwhile retirement benefits from their employers.

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Why is retirement planning important?

Again: money. In an ideal situation, retirement contributions are put away and never touched — out of sight and out of mind. These savings aren’t for short-term needs. They grow over the long haul to give future you total financial stability.

For example, let’s say you make $50,000 per year and put away a modest 4% of your income per paycheck into a retirement fund — beginning at age 25. 

If you do this until you’re 65, without ever increasing your contribution percentage, you’ll have about $400,000 saved to help you live a cushier life.

But let’s say you do everything the same, but don’t start until you’re 30.

You’ll only have about $280,000 saved — a whopping $120,000 less to enjoy during senior-hood.

Needless to say, the name of the game is putting away money as soon as you can for maximum reward.

How can you invest in your retirement?

Below are the most common retirement accounts used to build up cash over the long-term.

401(k): These are workplace accounts, offered by employers as a benefit, which allow you to contribute a percentage of your pre-tax paycheck directly to tax-deferred investments. Investments grow tax-deferred until they’re withdrawn, and some employers offer contribution matching programs up to a certain percentage. Solo 401(k) accounts are also available to those who are self-employed with no employees.

403(b): Employees of non-profits or other tax-exempt organizations are usually provided with the option to contribute to a 403(b) plan, which is very similar to a 401(k).

457(b): Another option that shares features of a 401(k), 457(b) accounts are offered through state and local governments. These accounts allow eligible employees to withdraw funds before the age of 59.5 without incurring a penalty.

Traditional IRA: IRAs, or individual retirement accounts, are tax-favored investment accounts that can be opened outside of your employer’s available plans. Putting money into an IRA can be a smart option if your job doesn’t offer a retirement plan or if you’ve maxed out your 401(k) contributions for the year. With an IRA, your investment gains aren’t taxed — which allows them to grow quickly.

Roth IRA: In comparison to traditional IRAs, Roth IRAs are made up of after-tax contributions. However, after your funds are added to a Roth, any money made within it is never taxed again. You can also withdraw money from a Roth before retirement age without penalty, as long as at least five years have passed since your first contribution.

Roth 401(k): This account combines aspects of a Roth IRA and 401(k). It’s an employer-sponsored account, but contributions are made with after-tax funds instead of pre-tax dollars. Those contributions are never taxed again after being in the account for a minimum of 5 years.

Simple IRA: A Savings Incentive Match for Employees IRA can be offered by small businesses with under 100 employees. These retirement plans work similarly to a 401(k), but withdrawing early can have a hefty penalty and borrowing from the account isn’t allowed. However, employers are required to make contributions to the account in addition to your own.

SEP IRA: A Simplified Employee Pension IRA is a retirement plan option for small business owners and those who are self-employed. Contributions can be fully deducted from your taxable income. However, contribution rules tend to make this plan best for companies with few or no employees.

What steps do you need to take for retirement planning?

No retirement planning situation is the same, and there’s no one-size-fits-all approach to saving for retirement. But here are some general steps to get your retirement fund up and running from scratch.

  1. Research each type of available retirement account for your situation.
  2. Open the retirement account you’re eligible for that best matches your needs — usually a 401(k) if your job offers it, or an IRA if it doesn’t.
  3. Determine your currently monthly budget and figure out how much extra cash you have that can be comfortably put toward retirement. Make sure you’re not spreading yourself too thin.
  4. Contribute a percentage of each paycheck to your new account. Even 2% to 4% can make a big difference in the long run, especially if you start early.
  5. Check with your employer to see if they offer any retirement benefits. Take advantage of any incentives or match programs — if you don’t, you are leaving free money on the table. If your employer will match up to 4%, contributing a minimum of that amount is in your best interest.
  6. Monitor your retirement fund and make percentage increases when your monthly budget allows it.
  7. When deciding between high risk or conservative investments for your retirement account, consider higher-risk options while you’re young and you have more time to recover from market downturns. The closer you get to retirement, the more conservative your investments should become — you don’t want a market correction to wipe out 10% of your retirement savings just before you start using it.

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Is it better to invest in retirement or pay off student loans?

Ah, the age-old question.

Student loan debt is often a major burden on the budgets of recent college graduates and people in their 20s. So of course, many young people want to get rid of it as quickly as possible to free themselves up financially.

But saving for retirement is typically one of the most important long-term items to include in your monthly expenses. Your future self will thank you for taking it into account.

To successfully plan for retirement, it’s essential to save something each paycheck as early as you can — even if it’s a small amount. If your employer offers a match program, you should ideally at least make the maximum contribution your job will match.

Outside of that, it really boils down to your income and monthly expenses. Take the time to figure out your budget and how much extra money you have each month. From there, put what you’re comfortable with toward retirement. If you’re not sure how much to save, or if you’re unsure about which retirement account is right for you, we recommend consulting with a tax advisor or certified financial planner.

Looking for ways to pay off student loans faster?

If you want to repay your student debt sooner to have more freedom for retirement planning and other life goals, you’re not alone.

For those who qualify, refinancing to a lower rate can be an excellent solution to pay student loan debt quickly while saving significant money on interest costs.

Use Purefy’s Compare Rates tool to see multiple refinancing options from a variety of top lenders, all with one simple form and no credit check.

Simply find your lowest rate, apply, and save. It’s that easy.

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Ascent Rate Disclosure

Ascent’s undergraduate and graduate student loans are funded by Bank of Lake Mills or DR Bank, Member FDIC. Loan products may not be available in certain jurisdictions. Certain restrictions, limitations; and terms and conditions may apply. For Ascent Terms and Conditions please visit: www.AscentStudentLoans.com/Ts&Cs.

Rates are effective as of 12/1/2023 and reflect an automatic payment discount of either 0.25% (for credit-based loans) OR 1.00% (for undergraduate outcomes-based loans). Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized back account each month. For Ascent rates and repayment examples please visit: www.AscentStudentLoans.com/Rates.

1% Cash Back Graduation Reward subject to terms and conditions. Click here for details.

SoFi Rate Disclosure

3 SoFi Rate Disclosure:

Fixed rates range from 4.49% APR to 8.99% APR with a 0.25% autopay discount. Variable rates from 5.09% APR to 8.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.

ISL Rate Disclosure

Earnest Rate Disclosure

2 Earnest Rate Disclosure:


Actual rate and available repayment terms will vary based on your income. Fixed rates range from 5.44% APR to 9.99% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.97% APR to 9.99% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.

Advertiser Disclosure:

THIS IS AN ADVERTISEMENT. YOU ARE NOT REQUIRED TO MAKE ANY PAYMENT OR TAKE ANY OTHER ACTION IN RESPONSE TO THIS OFFER.

Earnest Rate Disclosure

Rates displayed include the 0.25% Auto Pay discount. You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment from a checking or savings account. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.67% APR to 16.15% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.64% APR to 16.45% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan origination loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

Nine-month grace period is not available for borrowers who choose our Principal and Interest Repayment plan while in school.

Earnest clients may skip one payment every 12 months. Your first request to skip a payment can be made once you’ve made at least 6 months of consecutive on-time payments, and your loan is in good standing. The interest accrued during the skipped month will result in an increase in your remaining minimum payment. The final payoff date on your loan will be extended by the length of the skipped payment periods. Please be aware that a skipped payment does count toward the forbearance limits. Please note that skipping a payment is not guaranteed and is at Earnest’s discretion. Your monthly payment and total loan cost may increase as a result of postponing your payment and extending your term.

Loan Eligibility criteria: Eligible students must: 1) For college Freshmen, Sophomores and Juniors, attend, or be enrolled to attend, a Title IV school full-time. For college Seniors and Graduate students, attend, or be enrolled to attend, a Title IV school at least half-time; and 2) be pursuing a Bachelor’s or Graduate degree. Earnest private student loans are subject to credit qualification, completion of a loan application, verification of application information, self-certification of loan amount, and school certification.

Responsible borrowing tip: Explore all scholarship, grant and federal options before applying for a private loan.

Earnest Private Student Loans are made by One American Bank, Member FDIC. One American Bank, 515 S. Minnesota Ave, Sioux Falls, SD 57104.

Earnest loans are serviced by Earnest Operations LLC, 535 Mission St., Suite 1663 San Francisco, CA 94105, NMLS #1204917, with support From Navient Solutions, LLC (NMLS #212430). One American Bank and Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America.

Advertiser Disclosure:

THIS IS AN ADVERTISEMENT. YOU ARE NOT REQUIRED TO MAKE ANY PAYMENT OR TAKE ANY OTHER ACTION IN RESPONSE TO THIS OFFER.

ELFI Rate Disclosure

4 ELFI Rate Disclosure:

Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. See Terms & Conditions. Interest rates current as of 10/13/2023. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. Interest rates may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.00 per $1,000 borrowed. Rates are subject to change.

ELFI Rate Disclosure

Education Loan Finance is a nationwide student loan provider offered by Tennessee based SouthEast Bank. ELFI is designed to assist students financially with receiving their education. Subject to credit approval. See Terms & Conditions. Interest rates current as of 12/11/2023. Variable interest rates may increase after closing but will never exceed 18.00%. Interest rates may also differ from the rates shown above. The term of your loan, financial history, and other factors, including your cosigner’s (if any) financial history can affect the interest rate. For example, a 10-year loan with a fixed rate of 7% would have 120 payments of $11.61 per $1,000 borrowed. Rates are subject to change.

College Ave Rate Disclosure

College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. If a payment is returned, you will lose this benefit. Variable rates may increase after consummation.
Minimum loan amount $1,000, as certified by your school and less any other financial aid you might receive.
This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
Information advertised valid as of 1/1/2024. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.

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