Steps for Young Adults To Open and Maintain a 401(k)

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In your 20s and even in your 30s, retirement seems like a long time away, but the fact is, someday you may (most likely, you will) want to stop working as hard as you do and relax and enjoy your life in your 60s, 70s, and beyond. And for young adults who take great care of themselves, living a long and healthy life is not only a possibility but quite likely.

You don't want to run out of money before you run out of time. Saving for the future should start the day you begin working at a full-time job. A ​401(k), if offered by your employer, is the best way to get started with planning for the future.​

Key Takeaways

  • Participating in a 401(k) plan through your employer is usually the easiest way to get started putting money away for the long term.
  • The benefit of saving in your 20s goes beyond the money you'll have—you can take more risks and get a bigger return since your saving timeline is longer.
  • Don't let student loans prevent you from contributing to a 401(k) plan; revisit your budget to see how you can afford both.

How Do You Start Saving?

Participating in a 401(k) plan through your employer is usually the easiest way to get started putting money away for the long term. Most employers who are looking for top-quality employees offer a 401(k) as a benefit, which helps them to retain talent.

When considering accepting a job offer, take a look at the benefits package, and especially consider the 401(k) and how the matching contribution works. If it's a choice between a company that matches dollar for dollar, and a company that doesn't, consider that matching money to be additional income. It might be worth choosing that company for just that reason.

While not all companies offer matching contributions, and some have a delayed start for matching, everyone should be contributing the maximum amount they can to a 401(k).


 According to Forbes:

Let's say you earn $40k a year, contribute 10% to your 401(k) plan, receive a 3% match from your employer, and earn a 6% average annualized rate of return. If you were to start at age 22, you could end up with over $1 million by age 65. But if you were to wait until age 30 to start saving, you could end up with only about $617,000. Getting that early start means potentially over $300,000 extra in your nest egg, which could mean being able to retire earlier or live better in retirement.

That additional $4,000 may seem like a lot to give up out of your salary when you are starting out, but contributions to 401(k) plans are not included in the gross income that is taxed, so once again, investing for your future is as if you were getting free money. Reducing your taxable income can only help your overall income tax owed each year. The difference between starting at age 22 and age 30 is over 30% more money for retirement, and that's substantial.


The benefit of beginning to save and invest when you are in your 20s and 30s is not only that you will have money for retirement. You also can take more risks and get a bigger return, since your time for saving is long. When given options for how to distribute your 401(k) investment, look for an 80/20 split between stocks, which are usually much more lucrative but also more volatile, and bonds, which are stable but have a lower rate of return.

Use caution when taking advantage of stock options to purchase your company's stock, if it is offered to you. While a discounted cost is a great opportunity, don't overload your 401(k) with any one stock, no matter how successful it is or how much you believe in the company. Owning a variety of stocks is the key to a strong portfolio.

Don't Wait Because of Debt

Forty-four million Americans are in the process of paying off student loans, so if you have a debt to pay off, you are not alone. Don't make the mistake of waiting to start contributing to a 401(k) plan until after your loans are completely paid off, though. Budget your expenses carefully, and look for opportunities to pay off your debt, especially if you can automate those payments through payroll deductions like you might do with 401(k) contributions. Paying off loans while saving won't be nearly as difficult as you might think it will be.

Saving for the future is just as important as paying off debts from the past. You invested in your education; now you need to invest in your retirement.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Forbes. "3 Big Mistakes Millennials Are Making With Their 401K Accounts."

  2. Student Loan Hero. "A Look at the Shocking Student Loan Debt Statistics for 2021."

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