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Key Takeaways
- If you want to retire in 20 years, make a plan now to pay down debt and begin saving as much as you can.
- Maximize contributions to multiple retirement accounts, such as Roth IRA accounts, brokerage accounts, high-yield savings accounts, and 401(k) accounts.
- Frequently revisit your retirement plan and current finances so you can make adjustments and hit your goals.
If you’re 20 years out from retirement, you might currently be focused on paying off student loans, managing a sizeable mortgage, or paying higher living expenses. However, time is on your side, and with the right mix of savings and investment accounts, you can prepare to retire, especially if you work with top robo-advisors or brokers that offer traditional and Roth IRA accounts.
Assess Current Financial Position
If you’re a few decades out from retirement, you might just be getting started with saving. However, that means it’s a great time to come up with a plan, pay down debt (such as student loans or a mortgage), and open retirement savings accounts including high-yield savings accounts, individual retirement accounts (IRAs), and brokerage accounts.
- High-yield savings account: Think of this as a supercharged savings account, with the highest possible interest rates. If you want to save for retirement, but still have easy access to your funds (in case of emergency or a big expense), consider parking your money in a high-yield savings account.
- Individual retirement account (IRA): If you don’t have an employer or one that offers a 401(k), open a traditional or Roth IRA so you can start saving for your retirement. Depending on the type of IRA, you can contribute pre-tax or after-tax funds, where they’ll grow until retirement.
- Brokerage accounts: Save for retirement using an investment account that doesn’t have the same contribution and withdrawal restrictions as a 401(k) or IRA. You can choose the mix of investments, including stocks, bonds, and exchange-traded funds, and adjust your portfolio as needed.
Calculate Income Needs for Retirement
To plan for retirement, you’ve got to know how much money you’ll need at retirement. This can be hard to do if you’re 20 years out, which is why many savers prefer to use a robo-advisor. You’ll provide some personal information, including your current savings, current income, and desired retirement age. The robo-advisor will select a retirement portfolio designed to help you meet your goal. You can easily update the information if your situation changes.
Maximize Retirement Contributions
Some of your biggest tools for retirement savings are your 401(k) and traditional IRA or Roth IRA. If you don’t have an employer or your employer does not offer a 401(k), focus on funding your self-directed IRA. Make a point of saving as much as possible by maximizing contributions to every available retirement account.
This may be difficult to do, especially if your income fluctuates or you have other large expenses to consider, but try to prioritize saving if you want to retire in the next 20 years.
| Retirement Savings Contribution Limits | ||
|---|---|---|
| Type of Account | 2025 Contribution Limit | 2025 Catch-Up Contribution |
| 401(k), 403(b), 457(b), TSP | $23,500 | $7,500 |
| Traditional and Roth IRA | $7,000 | $1,000 |
| Self-Directed IRA | $7,000 | $1,000 |
Choose the Best Investments
Now that you’ve considered your current financial situation and determined how much you should save, you need to figure out your risk threshold in order to invest. Ideally, someone 20 years from retirement should have a balanced mix of aggressive and moderate financial assets. At the same time, you’ll want some exposure to conservative financial assets.
- Aggressive: These are the highest risk investments, which also offer the best opportunity for significant growth in the short term. Stocks, stock funds, exchange-traded funds, and cryptocurrency are all aggressive options since they stand to gain or lose the most.
- Moderate: These are the most balanced investment options that help you earn steady growth with less risk. Moderate investments include a smaller percentage of stocks along with bonds and cash investments.
- Conservative: The closer you get to retirement, the more conservative you want your investments to be, so you’re not at the mercy of market fluctuations and downturns. By the time you’re a few years from retirement, your investments should primarily be bonds with some stocks and cash.
Charles Schwab, Vanguard, and Fidelity are all top brokers who have managed funds designed for those who are planning to retire within 20 years. However, if you’re more comfortable working with a robo-advisor, you can still get investment options that take your financial position into account and evolve throughout your life.
Pay Down Debt
Saving goes hand in hand with cutting down on debt, especially if you’re paying interest on what you owe. Start by identifying areas in your budget where you can cut back on expenses. Maybe you skip taking a trip this year and instead pay off a loan, or instead of trading in your car, you keep it for another year or two so you can pay off some medical bills.
Prioritize paying off bad debt, such as credit cards, before moving on to personal loans like your mortgage. The more debt you can pay off before retirement, the better your finances will be when you stop earning income.
The Bottom Line
Whether you’re planning on retiring in 20 years or two, the most important thing you can do is to start saving. By assessing your current financial situation and setting savings goals, you can create an investment and savings strategy that allows you to meet your retirement timeline. When in doubt, work with a financial advisor who can help you adjust your plan or recommend specific saving strategies.
