Why it’s important to start a retirement plan in your 20s

If you’re in your 20s, it may seem like retirement is a long way off, but experts say putting a retirement plan in place is a smart financial move.

"Retirement is the biggest goal that we save and invest for throughout our lives, and it’s important to save for your future now – no matter how young or old you are," says Rita Assaf, vice president of retirement at Fidelity Investments.

Here are important reasons to start now if you’re in your 20s:

Protect yourself from economic downturns

Assaf explains that by saving for retirement in your 20s, or as early as you can, you have the benefit of time, which allows you to recover from any economic downturns that may impact your retirement savings.

Take advantage of a longer time horizon

Having an age-appropriate asset mix that includes appropriate levels of risk and growth potential can help you meet your goals, Assaf says.

"Investing too conservatively when you're younger might require more savings down the line," she says. "It's also smart to prioritize saving before you take on expenses like a mortgage or the cost of supporting a family."

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Compounding growth of your savings

Mindy Yu, director of investing at Betterment at Work, tells FOX Business that every dollar saved now is an investment toward your future.

"As you contribute to your retirement plan, the earnings this investment generates grow alongside the market over time," Yu says. "It’s important not to underestimate the power of compound interest, which means every dollar saved will be worth exponentially more when it comes time for retirement. It’s a marathon, not a sprint, to build up financial security."

Consider how your employer can help

Yu says employers may offer various financial wellness benefits, which typically include a 401(k) and may include other offerings such as a wellness stipend, access to a financial advisor, and more.

"Make sure that you understand the benefits your employer offers, and consider how they can help you more effectively invest and save  – for example, if your employer offers a health savings account, or HSA, money invested can help you pay for future medical expenses," she says. 

In addition, Yu says to take advantage of match programs.

"Some employers also offer 401(k) matching programs, which are essentially free retirement money for employees," Yu tells FOX Business. This means that companies will match up to a certain percentage of an employee's salary toward their retirement fund, assuming the individual contributes enough to meet the match, she says.

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If you can contribute through work, what’s the target amount?

While every situation is unique, Assaf says Fidelity generally recommends aiming to contribute 15% of your pre-tax income each year for retirement, including any contribution matches you may get from your employer.

"If saving 15% isn’t possible, start where you can," she recommends. If your employer provides a match, she says you should aim to contribute enough to get the entire match.

"Otherwise, it’s like leaving free money on the table, so you should absolutely be taking advantage of your employer match. Then increase your contribution rate by 1% each year until you get to the 15%," Assaf says.

What if a young person in their 20s says they can’t budget retirement savings? 

Yu says it may feel difficult to save money for retirement when you’re younger and, likely, making less money.

"While it’s important to make sure that you can support basic costs of living first, I would encourage every young worker to contribute even just a tiny portion of their paycheck towards their retirement fund – even if only 1-2% to start, though ideally enough to meet their employer’s match if one is offered," Yu tells FOX Business. "While most experts suggest saving at least 10-15% of your paycheck, that can be a stretch goal that you work up to over time. Putting away small amounts is better than saving nothing at all, and compound interest will help that investment snowball down the line — time in the market is critical."

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Assaf with Fidelity agrees that individuals in their 20s should make retirement savings a priority.

"People in their 20s have the benefit of time on their side, so staying invested and making steady contributions – even through market volatility and recession fears – can help your retirement savings grow long-term and recover from any downturns," Assaf says.