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Retirement Planning in Your 20s

I’d like to share this great email I received along with a response back. It’s about retirement planning, and it can be beneficial for those looking to retire early or just obtain a great start financially, especially if you are in your 20s.

retirement planning

Many first-time career workers and recent graduates will find value with this post.

“Your 20s are typically the perfect time to start planning for retirement, but sometimes life gets in the way. What did you do successfully in your 20s, or if you could go back in time, is there anything you would have done differently to ensure a better financial future sooner in life?

I would love to hear your thoughts on how you could’ve built your financial safety net in your 20s better–and how you can start it now if you haven’t already. What would be your ideal retire at 65 plan?”

I’ll start by sharing that I’m not any different from any of you. While I’ll admit I may have more awareness about financial matters than most peers my age, I don’t pretend that my plan is perfect.

In fact, if you take a hard and objective look at my financial plan… you’ll undoubtedly find places where I can be better optimized and more efficient. While processes to optimize work extremely well in the business world, they don’t always translate to real life.

This is important. What I’ve devised for myself works the best for the current situation I’m in, the lifestyle I desire, and the sacrifices and benefits I’m willing to take and keep.

It can change and should evolve as my life and situations evolve as well. This clarity is one that I’d recommend to anyone getting started with retirement planning in their 20’s.

Retirement Planning Motivation

Just do it. A slogan for a popular shoe brand, but also relevant advice for anyone starting out.

Of course, before we dive in we want to see some results to strive for. I’ll share a few that have helped keep me fired up. 

Since embarking on my road to riches journey, I’ve seen the following:

  • Substantial net worth increase
  • Beating the market consistently in my Roth IRA
  • Peace of mind and excitement from progress

Keep in mind that I didn’t go to school for investing or finance. My background with the stock market before starting was next to nothing. I didn’t have rich connections or an exclusive membership to Wall Street clubs.

And yet… I was able to find success by seeking out information from the top performers in the space.

Resources like books and podcasts have been indispensable in helping my craft a winning strategy. Both in the stock market and with my finances.

That’s the beauty of the age we live in today. We can have access to the type of information that used to be exclusive only to the elite and the connected. It’s all a stroke of the keyboard away, but we have to be the ones who are motivated enough to seek it out.

Also, there’s apps to track your net worth and progress. Personal Capital created a free net worth calculator that is worth checking out.

Now, onto the teachable moments. My successes and failures.

My Retirement Planning Successes

Consistent allocations
Of the many concepts you could learn, the single most important is consistency. It’s not talked about much, because it doesn’t create news headlines.

When you are consistent, you’re adding money whether the market goes up or down. This is good because nobody knows where the market will go tomorrow. Market timing is foolhardy.

So, the only way to combat the uncertainty of markets is to keep investing each and every month. By its nature, this will force you to buy more as stocks are going down and buy less when stocks are rising. AKA: buy low, sell high.

This concept is also known as dollar cost averaging, and it was the best tactic I learned from one of my early mentors.

Ask world class athletes, highly disciplined bodybuilders, or wildly successful investors, and they’ll tell you that the key to success is slow consistency. Turns out that childhood story about the tortoise and the hare was spot on.

Good stock picking track record
Success with stock picking has to be attributed to the system I use, not with my personal grandiose. While I am brilliant, obviously, I do recognize that picking the right strategy was immensely more important than the individual stocks themselves.

Better to teach a man to fish than give him a fish. That’s why I spent much time during my early years of investing learning about as wide a variety of stock market strategies that I could.

The system that most closely aligned with my goals happened to be value investing. This is a stock picking strategy predicated on selecting stocks that might be out of favor and holding them for the long term.

Value investing allows for peace of mind. It also puts time on your side, so you are profiting as the days go buy. It can provide these benefits in the same way that buy low, sell high works:

People are emotional, the market is made of people, so the market is emotional. By investing without emotion, you will be primed to profit from those who are being emotional. This is why value investing works. This is where to learn more about value investing.

Early signs of compounding
Remember the results I was talking about earlier? Like I said, the retirement plan I’ve put into place lets me welcome each day as an active force for my money.

In just under a year since opening my Roth IRA, I already see additional shares and fractions of shares added to my account from dividends that have reinvested. (Better known as DRIP)

That means that even if the share prices rise or fall, I own more of the company as time goes by.

Knowing that the general stock market has risen since inception (over the long term), I’m confident that most of my stock holdings will follow this path. Meaning that those additional shares will be worth exponentially more the longer I hold and DRIP.

My Retirement Planning Failures

Could’ve started earlier
This is a common gripe with investors. Of course, it’s a problem that can’t be fixed.

Sooner than you find the person who started investing at 18, you’ll find another that started at 15. Unfortunately, we can’t all be so lucky, but we can use the time we have left to make significant compounding happen.

Take note that Colonel Sanders didn’t start KFC until after he was 65. It’s never too late to start learning and start contributing to our retirement plans.

Should’ve taken a smaller student loan
I did have a few thousand that I could’ve sent back to the government, but spent frivolously instead. And yet I’m lucky, I’ve heard stories of people with $100,000 in student loans and more.

Again this isn’t something that can be fixed after it’s been done. But we can take the initiative and help the ones we care about not get stuck in that kind of predicament. If you knew a loved one was about to become a slave, wouldn’t you do anything to try and stop it?

In the end…

Can’t get caught up in the could’ve, would’ve, should’ve. Focusing on benefits is nice, but playing the comparison game only leads to despair.

So take this knowledge and apply it in the best way you can. A retirement plan formed in your 20s will do wonders for you at 65, 45, and even 25.

Don’t wait any longer.