Key Points
I know a lot of people who did not save a dime for retirement in their 20s. And I can’t necessarily blame all of them.
Some of my friends graduated college with student loans like I did. It’s hard to find money for retirement savings when you’re trying to pay off your education on an entry-level salary.
The fact that I managed to save a decent chunk of money in my 20s is something I’m proud of, despite having made some poor choices along the way. Here are two mistakes I sorely regret that you should try to avoid making.
1. I chose a traditional retirement account over a Roth
My first job out of college didn’t offer a 401(k) right away, so I opted to put my retirement savings into a traditional IRA. But that was silly.
I chose the traditional IRA because I liked the idea of shielding some of my income from taxes legally. In reality, my income was so low at the time that it would have made a lot more sense to fund a Roth IRA.
Yes, I would’ve given up the immediate tax break. But what I would’ve gained in return is tax-free growth in my account and tax-free withdrawals in retirement.
2. I chose cash and bonds over stocks
As someone who encourages people to invest in stocks from a young age, it pains me to share that I didn’t really start investing in stocks until I was almost 30. And while I had my reasons, avoiding stocks definitely caused me to forgo potentially large gains.
Now to be fair, my initial financial goals out of college were to pay off my student debt and build a 12-month emergency fund. (And yes, some might say 12 months is excessive, but after seeing various people in my life affected by layoffs, it’s what I needed for peace of mind.)
Once I met both goals, there was really no reason not to invest in stocks — except that I was trying to buy a house, which would’ve made stocks risky. I chose bonds instead to generate some income while accumulating a down payment. And since I was investing my non-retirement money in bonds, I decided it just made sense to keep my long-term savings in bonds as well.
But had I bought shares of an S&P 500 index fund at the time, I’d potentially be sitting on a lot more money in retirement savings today. And investing in the S&P 500 requires very little effort. There was no reason for me not to do it aside from laziness and a bit of unwarranted fear.
At this point, I’m well aware that the stock market can be a volatile beast. But I also know that wild swings are normal, and that staying invested through thick and thin is a good way to come out ahead financially despite near-term setbacks. I wish my 20-something self would’ve understood that better.
We all make mistakes
The fact that I spent my 20s paying off student loans, building a 12-month emergency fund, and saving up for a down payment on a home means I clearly had a decent head on my shoulders. Trust me when I say I had plenty of friends who closed out that decade of life with a whopping pile of credit card debt and a few hundred dollars in savings at best.
At the same time, I can’t help but regret the retirement savings choices I made early on. And while I can’t fix them, I’m sharing them in the hopes that you’ll learn from my mistakes and manage your money differently.
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