How much should I save for retirement in my 20s?

Aim to save 15% of your gross income, including any employer match. If that feels impossible right now, start with whatever you can — even 5% — and increase by 1% every six months. The habit matters more than the amount at this stage.

Is it too early to start retirement planning at 22?

It's never too early. Starting at 22 instead of 32 can mean hundreds of thousands more in retirement savings thanks to compound interest. A 22-year-old investing $200 per month at 8% average returns will have over $700,000 by age 60.

Should I pay off student loans or invest for retirement first?

Do both if possible. Always contribute enough to get your full employer 401(k) match — that's free money. Then prioritize high-interest debt above 6-7%. For lower-interest loans, split extra money between debt payments and retirement investing.

What is the difference between a 401(k) and a Roth IRA?

A 401(k) is employer-sponsored with pre-tax contributions, reducing your current taxable income. A Roth IRA uses after-tax money but grows and withdraws tax-free in retirement. In your 20s, a Roth IRA is often ideal because you're likely in a lower tax bracket now than you will be later.

Retirement Planning for Beginners in Your 20s: Start Now, Retire Rich

Retirement feels like a lifetime away when you're in your 20s. You're focused on rent, student loans, career building, and maybe saving enough for a weekend trip. Thinking about life at 65 seems absurd when you're still figuring out life at 25.

But here's the uncomfortable truth: the money you invest in your 20s is worth more than the money you invest at any other age. Not because you earn more now — you probably don't — but because of compound interest. Time is the most powerful wealth-building tool that exists, and right now, you have more of it than you ever will again.

Why Starting in Your 20s Is a Superpower

Compound interest is often called the eighth wonder of the world, and for good reason. When your investments earn returns, those returns earn their own returns. Over decades, this snowball effect is staggering.

Consider two people. Person A starts investing $300 per month at age 25 and stops at 35 — investing for just 10 years. Person B starts investing $300 per month at age 35 and continues until 65 — investing for 30 years. Assuming an 8% average annual return, Person A ends up with more money at 65 despite investing for one-third the time. That's the power of starting early.

Retirement Accounts Explained Simply

401(k) — Your Employer's Gift

A 401(k) is a retirement account offered by your employer. You contribute pre-tax money, which lowers your taxable income today. Many employers match a percentage of your contributions — typically 3-6% of your salary. This match is literally free money. If your employer offers a match and you're not contributing enough to get the full amount, you're leaving part of your salary on the table.

The 2026 contribution limit is $23,500 for people under 50. You don't need to max it out — just start with enough to capture the full employer match and increase from there.

Roth IRA — Tax-Free Growth

A Roth IRA is an individual retirement account you open on your own through a brokerage like Fidelity, Vanguard, or Charles Schwab. You contribute after-tax money, but your investments grow tax-free and withdrawals in retirement are tax-free. For someone in their 20s, this is often the best deal available because you're likely in a lower tax bracket now than you'll be in retirement.

The 2026 contribution limit is $7,000 per year. You can invest in stocks, bonds, index funds, and ETFs within your Roth IRA — it's not just a savings account.

Traditional IRA

Similar to a 401(k), a traditional IRA lets you contribute pre-tax money that grows tax-deferred. You pay taxes when you withdraw in retirement. This makes sense if you expect to be in a lower tax bracket in retirement than you are now — but for most people in their 20s, the Roth IRA is the better choice.

A Simple Retirement Strategy for Your 20s

Don't overcomplicate this. Here's a straightforward plan that works for most people starting out.

Priority 1: Get the Full Employer Match

If your employer offers a 401(k) match, contribute at least enough to get the full match. If they match 50% of contributions up to 6% of your salary, contribute 6%. On a $50,000 salary, that's $3,000 from you and $1,500 free from your employer every year.

Priority 2: Max Out a Roth IRA

After capturing your employer match, open a Roth IRA and contribute as much as you can, up to the $7,000 annual limit. That's about $583 per month or $135 per week. If you can't max it out, contribute what you can and increase it as your income grows.

Priority 3: Increase Your 401(k) Contributions

Once your Roth IRA is maxed, go back to your 401(k) and increase contributions beyond the match. The goal is to eventually save 15% of your gross income across all retirement accounts. You don't need to hit that number immediately — just move toward it over time.

What to Invest In

In your 20s, simplicity wins. A single target-date fund matched to your expected retirement year handles everything automatically — it starts aggressive with mostly stocks and gradually shifts to bonds as you age. If you prefer more control, a three-fund portfolio of a total US stock market index fund, an international stock index fund, and a bond index fund covers all the bases at minimal cost.

Avoid picking individual stocks with your retirement money. Index funds give you broad market exposure with low fees and historically outperform most actively managed funds over long periods.

Common Retirement Planning Mistakes in Your 20s

Waiting Until You "Make More Money"

This is the most expensive mistake you can make. Every year you delay costs you exponentially more than the amount you would have invested. Starting with $50 per month at 25 beats starting with $500 per month at 35. Time in the market matters more than the size of your contributions.

Cashing Out When You Change Jobs

When you leave a job, you might be tempted to cash out your 401(k). Don't. You'll pay income taxes plus a 10% early withdrawal penalty, losing up to 40% of your balance. Instead, roll it over into your new employer's 401(k) or into a traditional IRA. This keeps your money growing tax-deferred.

Trying to Time the Market

Nobody — not even professional fund managers — can consistently predict market movements. In your 20s, market dips are actually opportunities because you're buying shares at a discount. Set up automatic contributions and don't touch them. Consistent investing through ups and downs (dollar-cost averaging) outperforms market timing almost every time.

Ignoring Fees

A 1% difference in investment fees might sound trivial, but over 40 years it can cost you hundreds of thousands of dollars. Choose low-cost index funds with expense ratios below 0.20%. Vanguard, Fidelity, and Schwab all offer excellent options with fees as low as 0.03%.

How to Find Money to Invest

If your budget feels tight, look for money you're already spending that could be redirected. Cancel subscriptions you don't use. Cook at home one more night per week. Automate a transfer to your investment account on payday — before you have a chance to spend it. Even $100 per month invested at 8% returns grows to over $350,000 in 40 years.

Treat retirement contributions like a bill, not a choice. When you get a raise, increase your contribution percentage before lifestyle inflation absorbs the extra income. You won't miss money you never saw in your checking account.

The Bottom Line

Retirement planning in your 20s isn't about sacrifice — it's about giving your future self options. The math is simple: start early, invest consistently, keep fees low, and let compound interest do the heavy lifting. You don't need to be a financial expert. You just need to start. Open a Roth IRA this week, set up automatic contributions, pick a target-date fund, and forget about it. Your 65-year-old self will be very, very grateful.