How do you invest for retirement in your 20s?

1 min read by Unbiased team Last updated June 28, 2024

Discover how you can start investing for retirement in your 20s and ensure that you are financially prepared for the future.


  • Early retirement savings can grow significantly due to compound interest. 

  • Setting realistic retirement goals involves assessing your income, career potential, and aspirations. 

  • Diversifying investments with stocks, bonds, and mutual funds can enhance retirement savings. 

  • A financial advisor can create a personalized retirement plan to ensure you’re saving enough money to last throughout retirement.  

Why should you start saving for retirement in your 20s? 

Investing for retirement in your 20s may not seem like a priority when you’re young and have so much ahead of you. However, it is one of the smartest financial moves you can make.  

Investing $100 a month from age 25 can grow to over $200,000 by age 55, assuming a 10% annual return. Starting at 35, you’d need to save almost twice as much to reach the same amount. That’s the power of compound interest. 

Saving for retirement in your 20s also reduces financial stress later on.  

With a solid retirement fund, you'll have more freedom in your career and life choices. The sooner you begin, the less you need to save each month, making it easier to manage retirement savings alongside your current lifestyle. 

What are some retirement savings options in your 20s? 

In your 20s, you have multiple retirement savings options that set you up for future financial security: 

  • 401(k): If you have a job, your employer might offer a 401(k). You contribute pre-tax income, paying fewer taxes now, and your investments grow tax-free until withdrawal. Some employers match your contributions, boosting your savings. 

  • Traditional IRA: Similar to a 401(k), traditional IRA contributions are tax-deductible, and investments grow tax-deferred. It's a good choice if your job doesn’t offer a 401(k). 

  • Roth IRA: You contribute after-tax dollars, but withdrawals in retirement are tax-free. This is beneficial if you expect to be in a higher tax bracket later. 

Even if you’re in school or working part-time, starting with these options now can pay off in the future. 

How do you set retirement goals? 

Setting realistic goals for investing for retirement in your 20s begins with assessing your income, career potential, and personal aspirations. You also need to estimate your retirement needs based on your desired lifestyle, expected lifespan, and healthcare costs. 

It’s recommended to aim for retirement income that's 70-80% of your current earnings. Use a retirement calculator to pinpoint your target amount and break it down into smaller goals, like saving a percentage of your income each year. 

It’s also important to regularly review your goals.  

Saving and investing in your 20s isn’t always easy, and life is unpredictable. Jobs, the economy, and your ambitions can change. Keeping your retirement plans current ensures you stay focused and adaptable. 

How do you create a budget that includes retirement savings? 

A budget is key to knowing how to start saving money in your 20s.  

To budget for retirement in your 20s, start by understanding your income and expenses. List all your monthly costs, from rent, utilities, and groceries to extras like dining out and shopping. You can then find areas where you can save and put that money into your retirement fund. 

If possible, try to save 10-15% of your income for retirement. It can feel tough, but careful spending makes it possible. Use budgeting apps to track your spending and automate transfers to your retirement accounts for consistency. 

While saving and investing in your 20s is important, you must still budget for fun and hobbies. The aim is a budget that helps you now and sets you up well for the future. 

How can you take advantage of employer-sponsored retirement plans? 

Employer-sponsored plans like 401(k)s have great perks, especially if they match your contributions. Getting the full match means extra money for you. For instance, if your employer matches 50% of what you put in, up to 6% of your salary, aim to contribute at least 6%. 

It's smart to know about vesting and contributions. Vesting rules say when you fully own employer contributions. Understanding these terms helps you make the most of your benefits and avoid missing out on money if you switch jobs. 

Start with a small percentage and increase it over time. Even adding a bit more each year or when you get a raise adds up. This way, you can save more without it hurting your wallet too much. 

How can you explore other investment options? 

Saving and investing in your 20s is vital.  

Diversifying your retirement savings with different investments, such as stocks, bonds, mutual funds, and ETFs, can boost your savings. 

  • Stocks: Individual stocks can bring big returns but also carry higher risks. Do your research before investing. 

  • Bonds: Bonds are safer than stocks and pay regular interest. They can steady your savings when the stock market fluctuates. 

  • Mutual funds and ETFs: These funds pool money from many investors to invest in a mix of stocks, bonds, or other assets. They spread risk and are managed by pros, which is great if you're new to investing. 

Knowing how to invest in your 20s also means considering the risks and rewards. When you're young, you can take more risks because you have time to recover if things go south. Make sure your investments match your comfort level and money goals. 

Why is an emergency fund important? 

One of the best money-saving tips in your 20s is having an emergency fund. It’s key to keeping your retirement savings safe. Aim to save enough to cover 3-6 months of living expenses in an easily accessible account. 

This safety net will help you handle surprise costs like medical bills or car repairs without touching your retirement savings. Keep adding to your emergency fund until it's where you want it, and fill it back up if you need to dip into it. 

Manage your emergency fund wisely by putting it in a high-yield savings account. This way, it earns interest and stays easy to reach in case you need it. Keeping it strong ensures you're ready for any surprises. 

Get expert financial advice 

Understanding how to invest money in your 20s and how much you should be saving in your 20s sets a solid foundation for your future financial security. By exploring various savings options, setting realistic goals, and creating a balanced budget that includes retirement savings, you're taking proactive steps toward a comfortable and flexible retirement.  

Unbiased will connect you with a financial advisor for expert financial advice on how to start saving and investing for a secure retirement now. 


Unbiased team

Our team of writers, who have decades of experience writing about personal finance, including investing and retirement, are here to help you find out what you must know about life’s biggest financial decisions.