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Planning for retirement? Here are 10 tips for young professionals

Young professionals should save up for their nest egg, but while challenges may lie ahead, these 10 tips can be useful in retirement planning.



retirement planning

While retirement has always been treated as a time to “hang up your boots and do what you like,” modern retirees are taking this more seriously. Young professionals planning their retirement nest egg want to enjoy a comfortable and secure future, where they can do what they like without worrying about money.

However, they face some key challenges along the way. For instance, they are usually saddled with heavy student debt, as well as fluctuating incomes and a tax disadvantage if they’re single and childless. If they decide to start a family, they may get some tax benefits, but wedding, childcare, education, housing and other expenses add to their debt.

How can you start saving for retirement?

If you’re facing any of the challenges we discussed above, here are 10 retirement planning tips that will help you save for the future:

1. Open an IRA now

If you’ve started earning, whether through a business or a job, start saving in an IRA. Not only do you get tax benefits when you start contributing to these accounts but also more time for your money to grow.

2. Understand IRA types

Different IRAs give you different benefits, so open one that matches your needs. The most popular options are traditional and Roth IRAs, but consider a SIMPLE or SEP-IRA if you’re self-employed or a business owner.

3. Compare the tax benefits

Traditional IRAs allow you to make pre-tax contributions, so you only pay taxes when you make a withdrawal. On the other hand, Roth IRAs are funded with post-tax money, but withdrawals are tax-free.

4. Check for employer plans

If your employer offers a 401k plan for employees and you meet the eligibility criteria, join it. Make the maximum contribution that your employer will match since that’s free money going into your retirement fund.


Opening an IRA and understanding its types gives you a chance to make your money grow. (Photo by DepositPhotos)

5. Automate your savings

Make saving a habit instead of a luxury, and take temptation out of the picture. Set up a direct debit for your savings plan, so a certain percentage of your earnings or a fixed amount goes into it every month.

6. Contribute more every year

If you can’t max out your IRA contributions right away, at least put in the maximum amount you can. Increase this amount every year, as your income starts going up, so your nest egg will grow that much faster.

7. Pay off your debt

Debt repayment should be a major financial priority since it reduces the amount of money you lose in interest payments. Start with the most expensive debt first, and refinance whatever you can with lower-interest vehicles.

8. Start investing

Returns on investments will account for a larger chunk of retirement income than your savings and interest alone. Diversify your portfolio to make the most of long-term investments as well as short-term ones.

9. Rollover your 401k

When you change jobs, rollover your 401k money into your new employer’s plan or an IRA. Cashing out this fund will lead to penalties and taxes if you’re under the age of 59.5, but a direct rollover will not cost you anything.

10. Educate yourself

Stay up-to-date with the latest rules, regulations and opportunities, so you can make smart decisions for your future. If you need help, consult a financial advisor for guidance on investments and retirement planning.

It’s not impossible to start saving for retirement, though it may seem that way when you’re just beginning to explore the world of money management. In fact, starting early is the best move you could make. It gives compound interest more time to work its magic on your money, so you have a substantial nest egg to fall back on when you retire.

(Featured image by DepositPhotos)

DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.

Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments. Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as, SAP, MoneyForLunch, Biggerpocket, SocialMediaToday, and NuWireInvestor. If you need help and guidance with traditional or alternative investments, get in touch with Rick.