Dec 02
If you’re a typical 20-something, you’ve got a college loan payment, a cellphone payment, and one or more credit cards that you’re making minimum payments on, not to mention food, healthcare, and rent. But there is one thing that you have going for you: You are in the best position of your life to start saving for retirement. And here are some fairly painless ways to do it.
Interest1. Compound interest works in your favor. “The earlier you start, the less you have to save every month,” says Dallas Salisbury, president and CEO of the Employee Benefit Research Institute. “Start at 20, and set aside 15 percent of every dollar you earn, are gifted, or inherit, and you will be in good shape at retirement age. Wait until 40, and it will have to be 25 percent or more of every dollar earned. Wait until 50, and it will be 45 percent of every dollar earned.” The money you invest now still has lots of time to grow before you even think about retirement.

2. Matching is free money. “If you are in the younger generation, the chance that you will be covered by a defined benefit plan is less than the chance that your parents had,” says Andrew Eschtruth, associate director of external relations at Boston College’s Center for Retirement Research. But it is more likely that you will be given the opportunity to participate in a 401(k). You should make sure to put enough money into the 401(k) to receive the full employer match.

3. Take it with you. People in their 20s have a reputation for job hopping. But when you leave a job, don’t forget to take your retirement plan with you. Many people will simply pay the tax penalties on their old retirement plan and keep the cash. “If you do that two or three times as a younger worker, you are really sacrificing a large amount of money down the road when you turn 60,” says Eschtruth. You can avoid the fees by rolling a 401(k) over into an IRA, where the money can continue to grow, penalty free.Social Security Card

4. Don’t count on Social Security. Anyone born after 1960 will not qualify for full Social Security benefits unless retiring after turning 67. If you retire earlier, the amount you get in each check will be reduced. So you will either have to wait longer to claim your full benefit, or receive a reduced benefit compared with your parents, says Eschtruth. So, although Social Security may still be around to help fund retirement, it should not be counted upon as an exclusive source of income.

5. Take personal responsibility. Today about 33 percent of retirees get a monthly check from a pension, 28 percent receive health insurance from a former employer, and only about 7 percent of retirees’ income is from savings, including a 401(k), says Salisbury. But for people in their 20s today it is likely that 10 percent or fewer will get a monthly pension check or receive health insurance in retirement from an employer, Salisbury predicts. “It is too early to tell if it will be, but savings could provide income for 75 percent of future retirees and could provide as much as 35 percent of income for many,” says Salisbury. The bottom line: As retirement planning becomes more and more consumer driven, no one else is going to plan retirement for you. It’s something you need to do yourself.

Source: Emily Brandon

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written by Chris

11 Responses to “5 retirement tips for 20-somethings”

  1. 9 surefire Strategies NOT to Retire Early | nomad4ever UNITED STATES Says:

    […] have high demands, are happy to live a simple but fulfilled life in a low-cost-of-living country, plan ahead and have some savings which will provide you with passive income in the form of interest, rent, […]

  2. John CruddenNo Gravatar SAUDI ARABIA Says:

    hello there, simply wanted to say thanks alot for this post, it assisted me perceive something I did not given a lot of reflection to it beforehand.

  3. SunnyNo Gravatar SINGAPORE Says:

    As a young person, you should:
    1) Purchase sufficient insurance while you are still insurable.

    2) After you have been insured sufficiently (your entire human capital value), you should then save regularly.

    3) After you save regularly, you should set aside a 6-month Emergency Fund that covers your expenses for 6 months in case you are out of job

    4) After your 6-month Emergency Fund, you should invest most money in an equities and bonds, diversified fund regularly. The younger you are, the higher should be the equities allocation. If there is a tax-deductible scheme such as 401 K, use it to your advantage.

    5) As your income increases, make sure your expenses don’t increase just as fast. Keep budget low.

    6) Once you have accumulated enough assets to become financially independent, and you have no other dependants, consider to relocate to a cheaper location, then retire partially or fully.

    7) After you have retired, continue to earn an income, even if it’s a small amount. Consider blogging, writing, teaching, etc. Spend less time to earn money, more time to enjoy what you love to do, such as travelling, and keep your expenses low.

    8) If you are holding the citizenship of a country that taxes your worldwide income regardless of your domicile, consider to renounce your original citizenship and acquire another citizenship of a country that treats offshore citizens more fairly. If you do this, always go for government programmes. Don’t be cheated by con artists that offer questionable citizenship programs without official government approval.

    9) If you have additional fund beside your retirement income nest egg, consider to invest in a permanent visa of a country you would love to spend most time in. Examples include Malaysia (at least US$45K for retirees) and the Philippines (at least US$50k for retirees). Your money will be invested in stocks or band deposits and the investment must be maintained for you to keep the visa. It gives you rights to live in the country permanently and enjoy the low-cost healthcare services, housing and other services.

    10) Of course, your retirement nest egg should be invested in a financial centre with sound financial regulatory framework, strong currency, political stability and consistent budget surplus. Avoid countries with huge debts and budget deficits. Their governments may be forced to depreciate their currency or increase taxation.

  4. ChrisNo Gravatar INDONESIA Says:

    Great tips as usual, Sunny. Although I have a different opinion about Insurances. That is, because I think that I can invest my own money better than those guys. But for diversification and capital accumulation – maybe why not? :-/

  5. SunnyNo Gravatar SINGAPORE Says:

    OK, for insurance, there are a few types:
    1) Investment-linked insurance:
    They buy into units of mutual funds, and some units are deducted to pay for term insurance, while the other units behave similarly to mutual funds.

    2) traditional insurance
    They are invested by a fund manager. Some of funds are used to pay claims and expenses, while the others are declared as bonuses.

    3) term insurance
    They have no cash value, so they are the cheapest. You buy just the protection.

    I believe you were talking about just Type 2. But there are Types 1 and 3. If you want to invest your own fund you may choose Type 3. For example, most hospital and surgical insurance plans have no cash value. H&S is the most basic insurance that I think all of us should have at least a basic one. Medical costs can be very high. So, I’d buy one from a country like Singapore, Malaysia, or Thailand if I were a nomad in Southeast Asia most time. Insurance plans in these countries are cheaper than those in Europe and USA. They can cost as little as US$100-200/year. Averagely, that is about US$8-17/m. It’s just coffee money. I don’t think there is any reason to squeeze our budget even on this important financial protection. If I were to squeeze, it’d be on a few Starbucks treats or McDonalds’ meals which are totally optional for me.

    For example, the hospital insurance plan I have costs just US$120/year (US$10/m, which could buy me 2 McDonalds’ meals or 2 Starbucks coffee perhaps). It covers 100% (first dollar) of hospital bills in government (restructured) hospitals in Singapore (virtually all of which are JCI-accredited, which means they are all of world-class standard), subject to an Annual Limit of above US$100,000 and Unlimited Lifetime Limit. Additionally, there is a daily hospital cash. I can use it to cover my travelling expenses back to Singapore from, say, Thailand or Malaysia. A return ticket from these countries to Singapore is around US$150. So if I can claim US$50/day of hospitalisation in Singapore, I can cover this cost if I am hospitalised for 3 days or more. I can renew the plan for as long as I live and the premium will increase gradually as my age band increases. I may also claim for Emergency overseas treatments. So, when I finally reach my financial independence like Chris did a few years back, I will keep this plan. If I have any emergency like accidents overseas I may seek treatments, pay the bills first, hen file for a claim with this insurance company. If it’s not an emergency case, I may go back to Singapore to seek treatment at one of these world-class restructured hospitals. I will be assured a high standard of service and I don’t have to worry that my nest egg will be depleted. due to a serious illness that may require repeated treatments.

    Even for those who believe in investing on their own. they can buy sufficient term insurance with no cash value or ILP. For example, you should buy enough to cover:
    1) Disability (e.g. stroke, paralysis, accident)
    2) Long-Term Care (e.g. frailty, dementia)

    The above 2 types are particularly important. For nomads without dependants, they may not want to leave behind any estate. But what if you are surviving but bcos you met with an accident, you lose mobility and need to be cared for? Who’s going to pay for the nursing? Or what if you grow old one day and become frail? Research shows that 1 in 3 elderly people in USA will need LTC. So, it’s not an unlucky thing, but common thing, to require LTC.

    After buying your LTC and H&S Insurance, as a nomad, you could have more peace of mind. While you are healthy and mobile you can enjoy your travelling. When you are sick, the H&S will not cause you to worry about depleting your retirement nest egg. When you grow old one day or meet with an accident, you can also be assured you have enough coverage to allow you to carry on your life with dignity.

  6. Joe SiguraniNo Gravatar UNITED STATES Says:


    I enjoyed the tips. I was wondering if I could use your cartoon on compound interest for a “Bring your kids to work” chat for kids that are visiting my work?



  7. ChrisNo Gravatar INDONESIA Says:

    Joe, I only found the cartoon on the internet as well, don’t know who is the owner of the rights, from my perspective go ahead and use it. :D

  8. Sarah GalimbaNo Gravatar PHILIPPINES Says:

    Retiring is one of the most difficult decision that an adult will be doing. It is important that he or she had fulfilled all the goals that they want to achieve.

  9. ChrisNo Gravatar INDONESIA Says:

    Sarah Galimba, maybe. But it can also be the easiest and most useful decision to make, to improve your life and wellbeing. Some goals you can as well only achieve, when quitting the work life and its regular day-filling schedule. ;;)

  10. MykaNo Gravatar GERMANY Says:

    Great advice. Take personal responsibility- this is the most important thing to consider. It will be you who will suffer if you will not do it right now.

  11. BryanNo Gravatar CANADA Says:

    Awesome advice. The hardest part is taking that good advice and actually implementing it. When I was 21 I was set on starting up an account for retirement, but I am 25 now and all my savings have gone to paying off student debt. It is unfortunate, but still not to late to start over I suppose.

    Thanks for sharing Chris.

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