Your 20s can be a very challenging time. You’re transitioning into adulthood, which means taking on all kinds of responsibilities.

While most people know they need to begin saving for retirement at some point, many Millennials aren’t sure when, exactly, they need to get started.

Is it too early to start saving for retirement if you’re still in your 20s?

Quit believing the stereotypes

As a Millennial, you probably know that other generations don’t exactly have the highest opinion of you. Millennials are often considered hopelessly lost to the point that they don’t even know where to get started with common “grown-up” goals like setting aside money for retirement.

We know that this just isn’t the case.

While it’s true that 62% of Americans have less than $1,000 in their savings accounts, it appears as though that Millennials may actually be the ones keeping that percentage from being a lot higher.

They are beginning to save at just 23, which is a lot sooner than the Baby Boomers did.

So, just because you’re part of the younger generation, don’t use that as an excuse to put off saving for retirement. You’re doing a lot better than people say you are.

And as it turns out, most of your fellow Millennials have already gotten started.  

The sooner you begin saving, the better

The idea that you can be too young to start saving is a fallacy with extraordinary repercussions. It could literally cost you thousands – maybe millions of dollars – if you make the mistake of believing this.

So, in a word, “no” it is not too early to begin saving for retirement if you’re in your 20s.

There’s one major reason for this:

Understanding compound interest

The sooner you begin saving money, the sooner compound interest will begin growing it.

Most people are familiar with simple interest. If I lend you $1,000 and charge you 5% interest, you’ll owe me the initial sum plus an additional $50 in interest.

Compound interest is basically interest applied to interest and it’s really at the heart of what makes long-term investing profitable.

Investments generally don’t come with simple interest, but in the scenarios where they do, you’d receive the same set amount every year.

For example, if you invested $1,000 at 10% simple interest, you’d get $100 at the end of that first year. At the end of the next year, you’d get $100 more. At the end of the third year, you’d get $100 more and so on and so forth.

Now, if you had 10% compounding interest, you’d receive $100 at the end of the first year, but at the end of the second year, the 10% rate would be applied to the $1,100 you now have. So, you’d receive $110. The third year, the 10% would be applied to $1,210, giving you $121 for a total of $1,331.

This compounding interest would continue until you finally withdraw your money.

Learn more about saving vs. investing here.

Setting aside a certain amount a month, no matter what

Start with whatever amount you have at the moment. If all you can afford is $10 a month, that’s better than nothing. The power of compounding interest will help grow that amount over time.

Just try to forego a couple cups of coffee from Starbucks or a trip to a fast food restaurant and you’ll easily have that amount every month to set aside for retirement.

As time goes on, the benefits of disciplined monthly investing will really begin to show.

One Millennial’s journey

Let’s take a look at an example of how much money you can set aside simply by getting started early.

Dave is a 23-year old who has decided to begin setting aside money for retirement.

He’s chosen a Roth IRA for his retirement account because he likes the idea of a tax-deferred account. Specifically, what that means is that when he’s ready to withdraw for retirement, he won’t have to pay any taxes.

Fresh out of college, he only makes about $1,100 a paycheck after taxes are taken out. After rent, car payment, student loan payment, utilities, gas, and food, he only has about $400 leftover for everything else.

That’s not a lot, but Dave decides to take just $100 of it and put it towards his Roth IRA every month.

Thanks to compounding, he’ll have approximately $276,758 waiting for him when he retires at 65. That’s assuming a 7% return, (the average for the period 1950 to 2009, if you adjust the S&P 500 for inflation and account for dividends) and that he never increases the amount he contributes once he pays off his loans and/or receives a raise.

If he waited just four years to get started, that total drops down to $207,073. Just four years of waiting cost him nearly $70,000. If he decides to hold off until he’s 30, he’s now at just $153,510.

It’s important to note that while this may represent a realistic rate of return in today’s economy, past results may not guarantee future results.

Start saving today with a Roth IRA on Stash 

One of the easiest ways to begin investing in your retirement is with a Roth IRA. At Stash, we can make it even easier to get started.

Want to learn more about what you expect to have saved by retirement? Check out our retirement calculator.

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