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Retirement planning is one of the most basic pillars of the personal finance blogosphere. But if you're young, then there are bigger things to worry about.

Retirement planning is one of the most basic pillars of the personal finance blogosphere. Nearly everyone who blogs about anything related to finance will advise you to save for retirement as soon in your working life as you can and to the greatest extent possible.

That’s good advice—generally speaking—but if you’re twenty-something and looking to establish yourself in life a bit, you may have a few other financial concerns to tackle first.

Your career

If you’re fresh out of school the first priority has to be landing that first job and establishing yourself as a long-term player. In a perfect world it would be good to get your company sponsored retirement plan going at the same time. In the real world however there may be a few things more immediate in scope that need to be taken care of before committing to a very long-term project like a retirement plan.

From a different direction, employers sometimes frown on job candidates who are overly concerned with the company’s retirement plan (NOT a good question to bring up on an interview!). You’re beginning a new career and already focusing on it’s ending; no matter how harmless your intentions, it can come across as a motivation conflict.

Your basic savings

Retirement investments are long-term savings, and as important as that is, short-term savings are even more so. It’s fine to be setting money aside for the future, but that will do little to enable you to deal with emergencies that can crop up as early as tomorrow.

Sure, you could draw down your retirement savings in a pinch, but that usually comes with complications. If you don’t have some money set aside to cover current emergencies, you really can’t afford retirement savings.

Savings have another purpose that’s especially important for young adults. The more savings you have, the less likely you’ll be to go into debt. If you already have substantial debt, the last thing you want to do is add to the pile. Emergency funds will help you to avoid that problem.

Your debts

If you have large student loan balances, credit cards and a car loan, your financial plate is already just about full. Yes, it would be nice to start retirement savings so early in your life, but your debts are a much more immediate threat to your financial well-being. Too much debt can even threaten your entire financial situation. At a minimum, you need to lower your debt to a level you can easily manage before you begin saving for retirement.

This is even more important than it seems at first glance. The financial patterns of your life will largely be established when you’re in your twenties. Debt is not pattern you wan to embrace! You may have needed debt to get through school and to establish yourself as an adult, but the sooner you get rid of it the better the rest of your life will be, financially speaking.

And here’s a bonus: the lower your debts, the less you’ll have to pay to service them. The less you pay to service your debts, the more money you’ll have to eventually fund your retirement plan.

Feathering your nest a bit

This is an issue that’s largely ignored in perfect world financial discussions. But the fact is you will need certain “tools” in order to participate in the modern workforce, and they’ll have to be paid for one way or another.

Which do you need more, to begin retirement funding or to buy a car so you can get to work? No car equals no job, equals no paycheck to fund retirement.

And it’s not just a car you’ll need. You’ll probably need a place to live that’s reasonably close to work, some basic furnishing so you don’t have to sleep on the floor, a laptop computer and/or smart phone for use in work (and finding work when necessary!), and some clothing so that you’ll have something to wear on the job.

Making choices

If life were perfect, you’d begin paying off your debts in big chunks, quickly amassing an impressive emergency fund, buying your car, laptop and smart phone, and doing max funding on your retirement—all out of your little, old paycheck from your very first job.

Back on Earth however, real people have to make hard choices that don’t always allow us to do all things at once. That requires prioritizing. You have to decide what financial issues are most important and budget accordingly.

You might set a hierarchy that looks something like this:

  1. Land your first job
  2. Buy the physical necessities
  3. Get some money saved so you don’t have to rely on credit
  4. Begin paying your debts down until they reach a manageable level
  5. Then begin funding your retirement

You can change the order of course, but I have a feeling that even if you do retirement funding is unlikely to be at the top of the list.

What do you think—is the emphasis on early retirement contributions a bit obsessive? Do you agree that there are other priorities for young people?

Article comments

Parvinder says:

I love planning. So I often plan for our retirement. I want to retire early and so want to start early to enjoy the compound effect.

Derek Kaye says:

Hi JB – love your blog! 😉

It’s definitely true that when you’re first starting out you will usually have other financial commitments that may be more important. The reason why Advisors keep talking about this, however, is that the average North American doesn’t start to seriously consider retirement until they are in their mid 40’s to early 50’s.

That’s an incredible amount of income-producing (and interest-bearing) time that is wasted – and an extremely short time-period to suddenly begin putting money away with any sort of reasonable expectancy of a comfortable retirement.

There are many reasons for this: denial – too busy living life now to worry – “I’m young & will never get old…” – the list goes on. The reality is that, with more and more people approaching retirement with a huge debt-load, it’s even more important to start early than ever before.

The challenge is getting this information in front of people before they get caught up in life and the usual debt-cycle that most families get trapped in. Most people don’t give their finances much thought until there’s a problem – and then, for many, it may be too late.

By the way, I’ve lived just like this for most of my life so am talking from first-hand experience. It’s only been in the last few years that I’ve recognized what’s truly important and started not only planning for my future but educating others on these topics … a bit late perhaps but better late than never.



Teacher Man says:

I hear you Derek, this is sort of where I come from as well! Thanks for stopping by.

I’m almost 30 and have just started retirement saving. Once I paid of my student loans and had a downpayment for a condo, I decided that retirement couldn’t be put on hold anymore. I’m not contributing as much as I’d like, but I’m not super worried as I still have time to catch up (and in theory will be making more money as I get older and progress further in my career).

Teacher Man says:

Ouch… 30 eh? I just love the magic of compound interest too much to wait that long. Good luck catching up and congrats on paying down your other debts!

Megan says:

I couldn’t agree more with this. Yes it’s lovely to be able to save for retirement – but being actually able to afford doing it? So much advice seems to be: “do nothing fun/frivolous/social/just-because-you-want-to EVER unless you’ve got a huge pile of savings and no debt” – and it’s just not realistic. Working on one goal – getting rid of consumer debt, for example, or building a little emergency fund – that’s not an overwhelming challenge. It’s doable, and still lets you enjoy aspects of life that yes, cost disposable income.

While I agree that there are priorities that need to be addressed, like an emergency fund. The younger you start investing for retirement means the less you actually have to put into it. It’s also one of those things that people tend to put off. They keep saying I’ll start next year, only next year comes and goes and a decade or two has passed with nothing in retirement. Even if you want to work until you’re 100, retirement is a form of emergency fund for old age. Because we can’t guarantee how long we’ll be able to work.
I say start young and small. You don’t need to invest 20% of your pay, but 2,3,4,5% is a good place to start.

Debt Roundup says:

I am in my late 20’s and I just started focusing on adding to my retirement funds along with funding my short-term savings. I think it is wise to deal with both if you have the means. All of this came after paying off all of my credit card debt. Now, all I have is a mortgage. I think young people should have priorities with their money, but so many of them see that they are making money, so they want to blow it. I made that mistake and I paid the price for it.

Savvy Scot says:

I feel very lucky in saying that I have a final salary pension with my company and am retirement eligible at 55… not sure that these sort of deals will be available for much longer!

That’s a realistic point JB, but nothing is too early in preparing for your own future, right? Realistically speaking, in this economy, nothing and no one can be assured of anything. Early on we should be able to distinguish what is our priorities and be as prepared as we can be when the rainy days comes.