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Here’s why it’s smart to start saving for retirement when you’re in your 20s

When you're in your 20s, retirement saving may not be the first goal on your financial checklist — if you even have one.

Yet starting to save for retirement as early as possible can set you up for success in the long-term.

"It's totally understandable, because it's tough when you get your first job; it's not like you have a whole lot of excess funds," said Rob Greenman, a certified financial planner and chief growth officer and partner at Vista Capital Partners in Portland, Oregon.

Still, beginning to put away just a little bit of money from an early age can mean that, over time, you could save less from each paycheck but still reach retirement earlier than you thought.

"Most people that I sit down with always say 'I wish I started sooner,'" said Tess Zigo, a CFP at Emerge Wealth Strategies in Lisle, Illinois. "No one ever says, 'gosh I wish I didn't invest in my 20s.'"

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The value of compound interest

The reason it's important to start saving as soon as possible is that having a longer horizon gives compound interest more time to work.

Compound interest is when the interest you earn on a balance in a savings or investing account is reinvested, earning you more interest. It's basically money making money. Compound interest also accelerates the growth of your savings and investments over time.

Say you invest $100 and it grows at a rate of 10% annually, meaning you have $110 after one year. After the second year, you'll have $121, and $133 after the third year. The amount will continue to grow by more each year due to compound interest.

This also means that you can save much less initially if you have more time for your investment to grow and compound. For those early in their career who may not be able to save consistently, putting what you can away as soon as possible can start you on the right track.

"The reality of the way compounding works is that the earlier you get going the less you're going to have to save down the road," Greenman said.

Using the "Rule of 72" — a formula to calculate how long it will take money to double — you can expect that money you invest will double in roughly 10 years, Zigo said. If you start saving in your 20s and expect to retire in your 60s, you could see four decades of doubling, she said.

But starting just a decade later means you'd miss out on one entire round of doubling.


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