How to Start Saving for Retirement in Your 20s

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Wondering about how to get started saving for retirement in your 20s? In this article, we’ll take a look at the basics of how to find the money in your life to save with and how to invest it properly.

How to Save for Retirement in Your 20s

We’ve all heard the saying “the early bird gets the worm,” right? So if you’re in your 20s and starting to think about saving for retirement at a young age —  congratulations!

Retirement may seem really far away from today, but your commitment to your future will really pay off handsomely down the road.

“My goal is to have you automatically put in a set amount of money regularly toward investing,” money expert Clark Howard says. “This helps you build the habit of saving and reduce your overall risk to market ups and downs.”

Table of Contents

  1. Set Up a Budget
  2. Start Saving for Retirement at Work
  3. If You Have Extra Money, Invest Outside of Work
  4. Start a Side Hustle
  5. Sell Stuff You Don’t Need for Extra Money
  6. Lower Your Student Loans
  7. Work to Build Healthy Credit

1. Set Up a Budget

You can’t start saving for retirement until you have some extra money in your life, right? But if you’re in your 20s, chances are you have a lot of financial commitments — student loans, rent, groceries, transportation, entertainment, etc. — pulling you in a lot of different directions.

To get a firm grasp on your finances, you need a budget. Budgeting is the best way to keep debt at bay and live on less than you make.

Team Clark’s budgeting method — aptly called the CLARK Method — is easy to follow along with and comes with a free budgeting worksheet. We’ve got everything you need to get started right here.

Remember, the whole point of budgeting is to help you spend less than you earn and to free up money so you can invest it for your future.

2. Start Saving for Retirement at Work

OK, once you’ve got your budget under control, it’s time to get started investing.

The easiest place to do this for most people is in the workplace. Your employer probably offers a 401(k) or some kind of other employer-sponsored retirement plan. Maybe you even have access to a Roth 401(k).

If you’re just hearing these terms for the first time, here’s a brief overview of what you need to know:

  1. 401(k) contributions are pre-tax. So you get a tax break today, but you have to pay tax on the money you save in this account when you tap it in retirement.
  2. Roth 401(k) contributions are post-tax. The money’s already been taxed today, so it won’t be taxed again in retirement.

Generally, if you’re at a 24% tax bracket or below you’re better off with the Roth 401(k). High income earners, however, will probably want the basic 401(k) to help lower their taxable income.

But both the 401(k) and the Roth 401(k) are just shells; you’ve got to put something inside of them. And the thing you put inside of them is your actual investments.

Clark’s preference is that you keep your investment selections simple. That’s why he favors something called a target date fund. We’ve got a full explanation of how this very easy investment works here.

TIP: Pick Up Your Full Company Match

Most companies will match your contributions to your 401(k) or Roth 401(k). So you want to be sure to contribute at least the minimum necessary to pick up the full company match.

“The beauty of an employer match is that it’s the equivalent of an automatic pay raise,” Clark says. “No need to ask your boss, get a good quarterly review or hope your company has a good year so there’s money for a raise.”

Think about it like this: If you don’t pick up your full company match, you’re leaving free money on the table.

3. If You Have Extra Money, Invest Outside of Work

When you’re saving for retirement in your 20s, you also want to think about ways to invest outside of the workplace. Typically, that involves a Roth IRA.

A Roth IRA is a tax-free account that’s available to most people. We’ve got a complete explanation of how the Roth IRA works — including how to determine your eligibility and how to open an account online — here.

4. Start a Side Hustle

Many times when you get your first job out of school, it won’t necessarily pay a lot of money. Your income will almost certainly be smaller when you’re just getting started vs. when your career is at its peak in a couple of decade.

But that doesn’t mean you can’t find extra income in your life right now. Want to really start building money for your future? Then you’ve got to increase your income today. One of the best ways to do that is by taking on a side hustle.

Side hustles can encompass everything from traditional work-at-home jobs to more sporadic money-making endeavors. In the latter category, we have a full suite of articles you may want to check out:


Meanwhile, if you find your side hustle turns into a profitable business in its own right, that gives you access to another kind of retirement account outside of the workplace — a SEP IRA.

5. Sell Stuff You Don’t Need for Extra Money

Bringing extra income into your life doesn’t have to be a heavy lift. Sometimes it can be as simple as opening up your closet and seeing what you have in there that you’d be willing to part with for a profit.

Our guide to the best websites and apps to sell your stuff covers the following categories:

  • General online marketplaces
  • App marketplaces
  • Selling electronics online
  • Used clothing selling
  • Selling collectibles, antiques & more

Meanwhile, if you’ve got old CDs, DVDs and games to unload, you may be interested in our Decluttr review. In it, I explain how I made $100 selling used CDs and DVDs using Decluttr.

6. Lower Your Student Loans

We all know student loans can take a big bite out of your budget when you’re saving for retirement in your 20s. Fortunately, there are ways to lower your monthly payment on federal student loans thanks to a variety of repayment programs:

  • Income-contingent repayment
  • Income-based repayment
  • Pay-as-you-earn repayment
  • Revised pay-as-you-earn repayment

Unfortunately, those with private student loans don’t have access to the same repayment programs. But they may be able to refinance their private loans at lower interest rate. is among the companies offering this refi option.

Finally, certain career choices will also currently qualify you for student loan forgiveness after 10 years of on-time payments and jumping through some other hoops. Read our piece on how to know if you qualify for student loan forgiveness.

7. Work to Build Healthy Credit

Good credit is something everyone should work to build regardless of age. A good credit score will give you access to better interest rates when you have to borrow and better premiums on auto and home/renter’s insurance, among other things.

The #1 rule to having a good credit score is simple: Pay each and every bill on time every month. That accounts for the lion’s share of your credit score and that’s really no secret at all. But there are other lesser-known ways you can finagle your score, too.

Here at, we’ve worked with Beverly Harzog, consumer finance analyst and credit card expert for U.S. News & World Report, to unearth 5 sneaky ways to improve your credit score.


Among the tips she reveals in her article are:

  • How to pay down debt strategically
  • Why you want to raise your credit limits
  • What kinds of lines of credit you may want to introduce into your credit mix to boost your score

Building good credit in your 20s will put you in good shape for what comes later in your financial life, including home buying.

Final Thought

The good thing about saving for retirement in your 20s is that time is on your side! Play around with a few of the ideas in the piece. See what works and what doesn’t for your life. There’s always time to make adjustments because you’re so far ahead of the game.

Got additional investing questions? Consider contacting our Consumer Action Center.

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