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Retirement planning for people in their 20s and early 30s

It is often hard for someone in his or her 20s or early 30s to see the need to set aside any money for retirement. At this age there are many pressing financial needs, and retirement planning is often low on the list. However, here are a few things every young investor should consider:

  1. You need to plan now for your future. If you are just starting out in your career, your goal should be to save at least 10% of your salary for long-term retirement investing. Depending on your circumstances, you may need to contribute more. It's best to contribute a percentage of your income to retirement investing, rather than a set dollar amount. That's because as your income rises, the amount invested will automatically increase.

  2. Time is now on your side. The time value of money is an amazing mathematical principle. Assuming an 8% average return, a 25-year-old investor would need to invest $160 per month to have $500,000 at age 65. If he waited until age 35 to begin investing he would need to invest $368 per month to reach that same $500,000 goal at age 65. The younger you start, the more the compounding effect of money over time works in your favor.

  3. Take advantage of your employer's retirement plan. Most employers, including Southern Baptist churches, offer a retirement plan for their employees. Just ask your employer to redirect a portion of your pay to the retirement plan they offer. This offers automatic investing on a pre-tax basis and allows you to decide in advance your financial priorities.

  4. Educate yourself about investing. You don't have to be a financial genius to make good decisions about your investments. However, everyone needs a basic knowledge of financial matters. Plan to attend financial seminars hosted by your employer or your church. Go to the library and pick up several books on investing or financial planning. Learn about the difference between stocks and bonds, how mutual funds work and what would be an appropriate asset allocation for a young investor.

Retirement planning for someone in his 20s and early 30s? You bet! A great start will go a long way toward a strong finish.