Real Answers for Life’s Money Challenges
Im 23 years old and make a $55,000 salary.
Each year I can make upward of a 20% bonus, and Ive always gotten it.
I have a decent emergency fund of three months expenses.
My company doesnt offer a 401(k) match, so I havent contributed to it at all.
Im worried I wont have enough saved for retirement.
-J.
Dear J.,
Relax.
Financial planners often recommend saving between 15% to 20% of pre-tax income for retirement.
The maximum Roth IRA contribution for someone under 50 is $6,000 in 2022.
That means youre falling a tad short of that recommendation, particularly when you factor in your bonus.
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But Im not too worried about the exact percentage youre saving.
In your 20s, simply finding any money in your budget to invest can be extraordinarily difficult.
The habits youre building right now are just as important as the amount youre saving for retirement.
Make it a goal right now to allocate at least a bigger portion of future raises toward investing.
You have several options for investing more right now if thats a high priority.
But there are a few things to consider first.
No Interest Til Almost 2027?
You say youve always gotten a bonus, but that may not always be the case.
A bigger emergency fund protects the retirement money youve managed to save.
You wont get free money out of your employer, of course.
But youll still get some generous tax breaks.
Of course an HSA is first and foremost for medical expenses.
But you’re free to also invest that money if you dont need it.
That money can grow the same way it would in an IRA or 401(k).
Maxing out your Roth IRA at 23 is a huge accomplishment.
I have no doubt that youll be able to find ways to save even more over time.
Just dont get so focused on retirement that you ignore your short- and medium-term goals.
For most people, retirement is the ultimate financial milestone.
You dont need to put every extra cent into a retirement account.
Because youve started saving early, you have the luxury to prioritize other goals.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder.
Send your tricky money questions to[email protected].
(Can you sense my millennial sarcasm there?)
You know which ones were talking about: rent, utilities, cell phone bill, insurance, groceries…
