Just starting out? Now's the time to create a solid plan for investing and saving.
WHAT YOU NEED TO KNOW:
Savings goal at age 30: 0.6 x your income
Biggest cash drain: Student loans and other debt
Biggest challenge: Overcoming fear of investing
Biggest opportunity: Lots of time for your money to compound
1. Be courageous. Nearly 40% of Gen Y-ers say they'll never feel okay investing in stocks, MFS Investment Management reports. Take note: Since 1926, a portfolio mostly in stocks has never lost money in any 20-year period while averaging gains of more than 10.8% a year, vs. 4% for bonds.
Get an age-appropriate mix with the target-date fund in your 401(k) or MONEY 70 picks Vanguard Target Retirement 2050 ( or )T. Rowe Price Retirement 2050 (. )
2. Go for a Roth 401(k). The Roth advantage: You save with after-tax dollars, so, unlike a regular 401(k), you won't pay income taxes on withdrawals. That's a good deal if you'll be in a higher tax bracket at retirement, as is the case for many young investors.
Four in 10 large plans now offer a Roth option, Aon Hewitt says. To hedge your bet on future tax rates, split your contributions between a Roth and a pretax 401(k).
3. Don't cash out. More than half of workers in their twenties who leave a job do not roll their 401(k) into an IRA or their new employer's plan, says Aon Hewitt. Bad move: On a $10,000 balance, you could be left with just $7,000 after taxes and penalties. If, instead, you keep that money growing at, say, 6% a year, you'll have an extra $100,000 or so by the time you retire.
Now that you're hitting your stride in life, it's time to start building up your assets and your income. Here's how.