Saving for retirement in your 20s might not feel like a top priority. After all, you’re likely just getting started with your career, paying off student loans, or figuring out how to handle rent and other expenses. But here’s the deal: the earlier you start saving for retirement, the easier it becomes to build a comfortable financial future. Even small contributions in your 20s can grow into a significant nest egg by the time you’re ready to retire, thanks to the magic of compound interest. Here’s how to get started and set yourself up for long-term success.

Understand the Power of Starting Early

One of the biggest advantages of saving in your 20s is time. Compound interest allows your savings to grow on themselves over the years. Think of it like a snowball rolling downhill, gaining more snow as it goes. The longer your money has to grow, the bigger that snowball becomes. For example, if you start contributing $100 a month at age 25, with an average annual return of 7%, you could have over $250,000 by the time you reach 65. But if you wait until you’re 35 to start saving, you’d only have around $120,000—even with the same monthly contribution and interest rate.

Small amounts matter, and starting now gives your money decades to grow, making your future financial goals more achievable.

Contribute to Your Employer’s Retirement Plan

If you’re working for a company that offers a 401(k) or similar retirement plan, take advantage of it, especially if your employer offers a match. Employer matching is essentially free money. For example, if your employer matches 100% of your contributions up to a certain percentage of your salary, investing enough to get the full match should be a top priority.

Even if retirement feels far away, think of those contributions as an investment in your future self. Many retirement accounts are tax-advantaged, meaning you could save on taxes now or later. If you’re unsure how to sign up or how much to contribute, reach out to your HR department or plan administrator for guidance.

Open a Roth IRA

A Roth IRA (Individual Retirement Account) is another excellent option for young savers. Unlike a traditional 401(k), with a Roth IRA, you contribute after-tax dollars. The big bonus is that your money grows tax-free, and you won’t pay taxes on qualified withdrawals in retirement.

If you don’t have access to an employer-sponsored plan, or you want to save more beyond your 401(k), consider opening a Roth IRA. The contribution limit for 2025 is $6,500 per year for those under 50. Even if you can’t max it out, contributing what you can is still a step in the right direction.

Build Saving into Your Budget

Setting aside money for retirement doesn’t have to leave you strapped for cash. The key is to treat it as a non-negotiable expense, just like rent or your phone bill. Start small if needed. Even saving 5% of your income can make a huge difference over time.

Try using the 50/30/20 budgeting rule. Allocate 50% of your income for needs, 30% for wants, and 20% for savings and debt repayment. Dedicate a portion of that 20% to retirement accounts. Automating your contributions ensures you’re consistently saving without the temptation to spend the money elsewhere.

Tackle Debt But Save Too

For many young adults, debt is a significant hurdle to saving. Whether it’s student loans or credit card balances, it can feel overwhelming to balance paying it off while saving for the future. One strategy is to focus on high-interest debt first, like credit cards, while continuing to contribute a small percentage of your income to retirement.

If your debt has low-interest rates, like federal student loans, it’s usually better to balance paying it down with saving for retirement. This way, you’re still giving your investments time to grow without putting all your resources toward debt repayment.

Live Below Your Means

One of the most effective ways to free up money for saving is to adopt a frugal mindset. Living below your means doesn’t mean never treating yourself, but it does mean being mindful of your spending and avoiding lifestyle inflation as your income grows.

For example, if you get a raise, resist the urge to upgrade every aspect of your life. Instead, use that extra income to increase your retirement contributions. Small sacrifices now, like cooking at home more often or skipping unnecessary subscriptions, can lead to much larger rewards in the future.

Educate Yourself About Investing

Saving is just one part of the equation; knowing where to put that money is equally important. If your retirement savings are sitting in a cash account, they’re missing out on the growth opportunities that come with investing. Most retirement accounts, like 401(k)s and IRAs, enable you to invest in stocks, bonds, or mutual funds.

Diversifying your investments helps manage risk while giving your savings the opportunity to grow. If the idea of investing feels intimidating, don’t worry. Many retirement plans offer target-date funds, which automatically adjust your investments based on your age. They’re a great option for beginners.