Ah, your 20s. The decade of finding your first real job, possibly moving out of your childhood bedroom (finally), and, oh yeah, figuring out this whole “retirement savings” thing. According to Western & Southern Financial Group, the average person under 25 has just $6,264 in retirement savings. Is it enough?
Spoiler alert: not really. But don’t panic just yet! Let’s dive into what this means and how you can course-correct without swearing off your favorite latte.
Starting from (close to) zero
That average $6,264 might feel like a drop in the bucket when you think about needing anywhere near 10 times your annual salary by the time you retire (yep, that’s the magic number). Now, before you throw your hands up in despair and decide to live off ramen forever, let’s break it down.
At this point in your life, having anything saved is better than nothing. You’re likely still figuring out your career, juggling debt, and maybe even paying rent for the first time. So don’t be too hard on yourself if your savings look slim. You’ve got decades to work with.
But the key here is starting early. Thanks to the magic of compound interest, every dollar you put away now is like a tiny financial snowball, gaining momentum as it rolls downhill toward your future retirement.
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How much should you really have saved by 30?
Alright, you’ve got $6,264 by 25. Now, how do you get to where you need to be by the time the big 3-0 rolls around?
A popular rule of thumb is to have the equivalent of your annual salary saved by the time you hit 30. So, if you’re making the median salary for someone in their early 20s, which is around $40,000 to $50,000, aim to have that much in your retirement savings.
That might sound a little intimidating, but the key is consistency. Small contributions over time can add up. Here’s where the good news comes in: You have time — and that’s your biggest asset.
The beauty of starting to invest in your 20s is that even modest contributions can grow substantially thanks to compound interest. And let’s be honest, you’re not retiring next week, so slow and steady wins this race.
The magic of compound interest
Essentially, compound interest means you earn interest on both the money you contribute and the interest that money earns. Over the years, this can turn even modest savings into a hefty retirement nest egg.
For example, if you contribute just $100 a month starting at age 25, and your investments grow at an average annual return of 7%, you’ll have over $239,000 by age 65. And that’s with just $100 a month!
Is $6,264 enough? Not exactly, but there’s hope
Look, let’s call it what it is: $6,264 in your 401(k) or IRA at 25 isn’t going to get you that beach house retirement dream. But here’s the thing — retirement planning is a marathon, not a sprint. The fact that you’ve even got something saved puts you ahead of many others your age.
The real goal right now is to establish habits that’ll set you up for success down the road. Whether it’s maxing out your employer match (that’s free money, after all!) or automating your savings, there are plenty of ways to get closer to that financial target. Plus, if you’re diligent, you’ll catch up — and possibly even surpass the average savings for people in their 30s, which is around $37,211, according to Western & Southern Financial Group.
What should you do next?
Here’s a game plan:
- Start saving, even if it’s small amounts. Contributing just a few dollars a month now can grow into a significant sum by retirement.
- Take advantage of employer matches. If your employer offers a 401(k) match, make sure you’re contributing enough to get the full match. It’s essentially a raise that goes directly into your retirement fund.
- Consider your risk tolerance. In your 20s, you’ve got plenty of time to ride out the ups and downs of the stock market. That means you can afford to take on more risk, which can lead to higher returns over time.
- Increase contributions over time. As your salary grows, so should your contributions. Aim to increase your savings rate by 1% each year or when you get a raise. You won’t even miss it in your budget!
- Don’t stress about the number. It’s easy to get fixated on whether you’re saving “enough,” but the most important thing is to just start saving and stay consistent.
No, $6,264 saved in your 20s isn’t enough for retirement, but it’s a solid start. The key is to build good habits now, take advantage of compounding interest, and keep your long-term financial health in mind. Your future self will thank you when you’re sipping piña coladas on a beach somewhere (or, you know, just enjoying a comfortable retirement).
Until then, keep saving — and enjoy your avocado toast.
