Early Retirement Planning for Young Adults

Who considers retirement in their twenties? You really should. If you start saving now and save consistently as a 20+ age person, you’ll have enough money to live comfortably in retirement. You’ll have enough money to do the things you never had time to do while working. But first, you must devise an effective retirement planning strategy.

Young individuals may assume they are at a disadvantage when it comes to saving for retirement because they are just starting out and may earn a low wage. There are, however, some obvious advantages, especially if you begin saving early.

Strategies for Retirement Planning in Your Twenties

Investing in various forms of mutual funds, exchange-traded funds, or bonds is part of retirement planning. A mutual fund is essentially a collection of securities. When investing over time, diverse asset mixes can help you achieve diversification, which means that your eggs aren’t all in one basket. 

Diversification mitigates some of the risks of loss by spreading your money across several sectors or industries. This is known as asset allocation. You can contact a financial advisor on this, but our retirement planners will present the best options to maximize your profit upon retirement and withdrawal.

Early Retirement Planning for Young Adults

Compounding Interests

Because of the power of compounding interests, saving early and often, even in tiny sums, can add up to big long-term advantages. The technique of gaining interest on interest on investment is known as compounding.

If you start saving in your 20s, you don’t need to invest a lot of money at first. Alternatively, you might make a lesser initial investment but contribute a portion of your paycheck each pay period.

The key to accumulating retirement wealth is to begin saving early, even if you can’t save much money at first. Remember that you can always increase your contribution amount when your income grows as a result of increases or job advancements.

You can also add more money each year if you get a tax refund. In short, take advantage of your youth by allowing the power of compounding to work in your favor.

It may appear that it is better to postpone saving for retirement until your income is larger and then contribute. This method, however, decreases the potential of compounding. If you start saving for retirement later, at age 35, you can still obtain the same total amount as if you started at 25, but your monthly payments must be increased. When you start making retirement financial planning early, you will allow compounding factor on your savings to handle some of the heavy liftings.

Consider Risk Versus Return 

Stocks and mutual funds are often riskier than bonds, but some types of bonds can also be dangerous. Stocks and mutual funds, on the other hand, outperform bonds. Savings accounts and certificates of deposit are low-risk investments, but they offer minimal interest. In other words, investments with a high rate of return frequently have a higher risk of loss.

Create an Individual Retirement Account (IRA) 

Many of the same restrictions apply to IRAs as they do to superannuation, but the contribution limitations are lower. You can only invest $6,000 per year in 2022, or $7,000 if you’re 50 or older, but there are some significant benefits. Almost every stock, bond, ETF, or other traditional investment is available.

IRAs are also not required to go via your company, giving you far greater discretion over how your money is invested. You can also invest in an IRA.

Early Retirement Planning for Young Adults

What Can You Do to Facilitate Early Retirement Planning?

Retirement planning is not as smooth as it sounds, especially planning from a young age. Even at this stage, the services of a retirement planner will greatly benefit you. However, to effectively implement these strategies listed above, there are some activities that you must check off your list. They include:

  1. Paying Off Your Debts

It might be difficult to implement any financial retirement plan while paying thousands of dollars in high-interest credit card debt over a period of years. Paying off high-interest debt is a wise financial plan, especially because many credit cards have interest rates of more than 20%.

Retirement planners advise that if you can pay off your student loan debt in fewer than ten years, you should prioritize it over preparing for retirement. However, this is not true in all financial situations, so get professional counsel before making decisions like these.

  1. Emergency Reserve Fund

Unexpected life occurrences can cause financial hardship. In most circumstances, you cannot remove funds from your retirement accounts without incurring a significant penalty. As a result, it’s critical to set up an emergency fund to cover unexpected expenses like auto repairs or temporary unemployment. It’s a good idea to save three to six months’ worth of living expenses. Most retirement planning calculator has no provision for this, so you’ll have to calculate this yourself or with the help of a financial or retirement planner.

  1. Aggressive Investing

Market downturns are possible during your lifetime and before retirement. They can cause your retirement account to plummet, but there’s no need to fear. 

Retirement planners advise investing at least 80% of your savings in equities in your early twenties because you have 30 or 40 years to recover from short-term stock market downturns. In other words, because you have a lengthy time horizon for retirement savings, you can afford to be riskier with your retirement planning when you’re young.

  1. Make Saving a Habit

When saving occurs automatically, it is easier to maintain discipline. Inquire with HR about setting up automatic deductions from your pay that will go directly to your superannuation fund or IRA each month. If you can afford it, make a big contribution, especially if you are not supporting a family.


Starting young is a great way to smoothen out your retirement financial planning without unnecessary strain. Though you may not save much at the onset, your compounding interest will prove invaluable in later years. Additionally, with an experienced retirement planner, you can take a shot at risky but promising investments with sufficient recovery time. If you’re ready to start your retirement planning, contact us today, and we’ll discuss the best options available to you.