The best part is it takes effort off of your shoulders.
Retirement savings can feel like a future problem for a 28-year-old managing rent, debt, job changes and a thin emergency fund now. However, what a 20-something lacks in money and resources can be made up with time.
That’s why financial planners say that automating retirement savings is the one financial goal that can change future wealth. Here’s how.
Suze Orman: Young People Could Retire as Millionaires by Doing This One Thing Early
Consider These: 9 Low-Risk Accounts Proven To Grow Your Money Up to 13x Faster
Make Room First
Before retirement savings can be automated, said Myles Zueger, CFP, 20-somethings need to find an amount they can consistently keep from each paycheck.
“Once you regularly spend less than you earn, you have money available to build an emergency fund, pay down debt, invest for retirement or save for a home,” said Zueger, a wealth advisor at Adams Wealth Partners.
He recommends reviewing the previous two months of spending and identifying one recurring expense that can be reduced or eliminated. The goal is to find a realistic amount, even if it’s only $25 or $50, rather than attempt a complete financial overhaul.
“Treat saving like a bill rather than waiting to see what remains at the end of the month,” Zueger said.
Claim the Match
Another way to save is to have contributions deducted automatically from each paycheck through a workplace retirement plan.
“If your employer offers a 401(k) match, contribute at least enough from each paycheck to receive the entire match,” said Maximilian Mann, CFP, a financial planner at Professional Financial Advisors.
Workers keep their own contributions when they change jobs and can generally roll the money into another retirement plan. Employer matches may vest over time, so workers should check the schedule before counting on that money or timing a job change.
When a Roth IRA Fits
If a workplace match isn’t available, Mann suggests opening a Roth IRA.
His advice works on several levels. Early careers can involve several job changes. A Roth IRA gives young workers one retirement account that can remain in place through those career moves.
A Roth IRA can be opened directly through a provider such as a brokerage firm, bank or other approved custodian. After opening the account, the worker can link a bank account, select an investment and schedule automatic transfers.
Let Raises Do Some Work
An automatic retirement contribution doesn’t have to remain the same as a worker’s career advances.
Zueger recommends directing part of each raise toward savings before the additional income becomes part of regular spending.
“Lifestyle inflation can make someone earning $100,000 feel just as financially constrained as they did earning $50,000,” he said.
Young workers can start with what they can afford now and increase the automatic contribution when their pay rises.
Bottom Line
Time can’t compound money that never reaches a retirement account.
After setting an automatic contribution, the final step is to schedule a review for three or four months later. Mann said workers can increase the amount then if cash flow remains comfortable.
A job change should prompt another check. Workers can restart the payroll deduction at a new employer or keep the Roth IRA transfer running. That keeps retirement savings moving instead of making every new job a new starting line.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion: