When you’re in your 20s, it can be difficult to know how to get started with investing. The good news is that if you’re starting to invest in your 20s, you’re already making incredible progress on your wealth-building journey: The younger you are when you start investing, the more compound interest—money—you could have in the future.
If you start investing in your 20s, you could potentially have hundreds of thousands more at retirement than someone who starts investing in their 30s or 40s simply because your money has much longer to grow. This could be true even if you earn a low income because time, not money, is your strongest wealth-building asset. That’s why it’s so crucial that you start focusing on your investment goals now.
Here are 5 strategies to help you meet your investing goals and make sure that you’re on track to retire comfortably.
1. Invest what you can, but aim to invest at least 20–25% of your income.
Personal finance experts say that you should invest at least 20–25% of your income (which includes your employer match) if possible.
The good news is that if you’re starting to invest in your 20s and you don’t have a lot of money, you can still take advantage of your biggest wealth-building asset: time. Anything you invest in your 20s will be a huge gift to you later on in life.
While investing 20–25% is ideal, you should be very excited about anything that you’re able to invest during your 20s. If you can even hit a 15% investment rate in your 20s, you’re doing amazing. Even investing 1% more of your income can make a difference when you’re this young.
Focus on growing your earning potential, building healthy financial habits, and investing what you can.
While you should strive to reach a 20% investment rate, it’s not the end of the world if your investment rate isn’t as high as you’d like it to be when you’re in your 20s because you have plenty of time to increase your income and your earning potential.
As long as you are investing as much as you can for your income level and as long as you’re focusing on building healthy financial habits (including staying debt-free, sticking to a budget, and paying yourself first), you are setting yourself up for long-term success.
2. Make monthly investment contributions to target a retirement savings goal.
You can also invest a certain amount per month to target a specific retirement savings goal.
If you earn a lower income, you absolutely have the potential to build massive wealth—potentially half a million dollars or more—if you start investing in your 20s. You do NOT need to be rich to build significant wealth. Because of the power of compound interest, just $50 invested now is better than $500 invested 20 years from now.
And while 500k might not be enough to retire on in 30–40 years, it’s still a massive amount of money that can provide for a substantial amount of your future needs. If the idea of saving 1 million, 1.5 million, or 2 million is dauting to you, you can always start with smaller goals and then increase your contributions as you’re able to.
Starting to invest now with just a little money is FAR better than waiting years until you think you have enough money to start investing. Without further ado, here’s how you could have 500k, 600k, or 700k by 62 (the median age of retirement):
This next chart shows how much you might need to contribute each month if you want to have either 750k, 800k, or 900k by age 62, assuming an 8% rate of return:
And if you’ve got more money in your pocket, you should strongly consider reaching more ambitious goals to give you even more financial freedom. This last chart shows you how much you could need to invest per month to reach 1 million, 1.5 million, or 2 million by age 62, assuming an 8% rate of return.
Although these are ambitious goals, if you’re in your 20s, you have so much time to increase your earning potential to get yourself on track to retire with financial abundance:
3. Invest a lump sum.
Another option to help you reach your investment goals is lump sum investing. Lump sum investing involves making one large contribution to your investment account—as opposed to making multiple smaller monthly contributions.
While investing smaller amounts of money on a regular basis is more accessible to most people, lump sum investing could be right for you if you encounter a sudden windfall or if you’ve been saving your money up for a while and you just haven’t known what to do with it yet.
Even if you don’t have a lump sum to invest, these numbers could help you make your own investing goals. For example, if you’re in your early 20s, maybe you’ll try to invest some money each month so that you can have $36,000 invested by age 29, which could translate to 500k when you’re age 62.
The following chart shows how much of a lump sum you might need to invest if you want to have 500k, 600k, or 700k by age 62. And while 500k might not be enough to retire on 30–40 years from now, this chart can still help you get a serious head start on your retirement savings goals and help make building wealth seem a bit more approachable:
This next chart shows how much of a lump sum you might need to invest if you want to have 750k, 800k, or 900k by age 62.
And this last chart shows how much of a lump sum you might need to invest in order to have either 1 million, 1.5 million, 2 million, or 2.5 million by age 62, assuming an 8% rate of return:
4. Meet investing milestones by age.
If you’re in your 20s, you should be working to have at least 1x your income invested by age 30 if you plan on retiring near the traditional age of retirement.
If you’re approaching 30 but aren’t on track to meet this investment milestone, you still have time to catch up on other key retirement milestones. If you can’t save 1x your income by age 30, focus on meeting your next investment milestone: investing 2x your income by age 35.
And while some argue that age-based investing milestones aren’t useful because what really matters is how many multiples of your annual expenses you have invested—to retire, you need at least 25x your annual expenses saved—if you’re in your 20s, you just don’t know how much money you’re going to want to spend each year in retirement. Age-based milestones can still be a good, quick barometer for how you’re doing financially.
5. Reach 100k in investments as soon as possible.
Reaching 100k in investments is one of your most important financial goals. The reason for this is that after you reach that first 100k, you start earning significant amounts of compound interest, which makes it much easier to reach 200k. The time it takes to reach each 100k interval becomes shorter and shorter due to the power of compound interest.
I created this infographic to illustrate why investing 100k is so powerful:
According to this infographic, if you invest an average of $500 per month with an 8% rate of return, it takes about:
- 10.63 years to reach 100k
- 5.67 more years to reach 200k.
- 3.89 more years to reach 300k.
- 2.97 more years to reach 400k.
- 2.40 more years to reach 500k.
And you don’t need to invest $500 a month to see your wealth skyrocket after you reach 100k. As a general rule, your wealth starts to skyrocket after 100k no matter how much you invest—but that doesn’t mean you should stop investing once you hit 100k.
For example, if you only invest $100 a month, it will take you:
- 25.54 years to reach 100k.
- 7.84 years to reach 200k.
- 4.79 years to reach 300k.
- 3.45 years to reach 400k.
- 2.70 years to reach 500k.
These examples show that you do NOT need to be rich to build wealth—you just have to make reaching 100k ASAP your top priority. If you want to accelerate your wealth building journey, reaching 100k as soon as possible is the single most important thing you can do.
To help you reach this important goal, I created this chart that shows how much you might need to invest per month or per year if you want to reach this goal in 15 years or less. This chart assumes you have an 8% rate of return, although there are no guarantees in investing:
How much do you need to retire?
How much you need to retire depends on the cost of living, your desired lifestyle, and what age you plan to retire at. AARP recommends having “at least 10 times your annual income at your retirement age,” although that assumes that you retire at the traditional age of retirement. Fidelity recommends having 12x your income saved if you’re retiring at 65.
However, you also need to make sure that your retirement account balance will be enough to sustain you throughout your retirement. Bankrate recommends having 25x your annual expenses invested if you’re retiring at the traditional retirement age.
But if you’re planning on retiring very early, you might want to have 30–40x your annual expenses invested, according to Bankrate. However, NerdWallet and Investopedia still recommend having 25x your annual expenses invested if you’re retiring early.
You can use a retirement distributions calculator to estimate how long your investments will last you in retirement. Here are some popular retirement calculators to help you find your retirement number:
- Four Percent Rule’s retirement calculator
- Financial Mentor’s Ultimate Retirement Calculator
- Financial Mentor’s Retirement Withdrawal Calculator
However, if you’re in your 20s, you’re ultimately not going to have a fully accurate picture of what you want your lifestyle and budget to be at retirement.
When you’re in your 20s, figuring out exactly how much you need to retire is less urgent than building the behaviors that create and maintain wealth: paying yourself first, automating your investment contributions, investing 20–25% of your income (or investing as much as you can even if it’s not 20–25% of your income), investing now even if you don’t think you have enough money to invest, staying within your budget, avoiding lifestyle inflation and high-interest debt.
If you’re not sure how much money you want to retire with and feel overwhelmed by the idea of setting a goal that’s decades away, start by trying to get to get to that first 100k (or even 25k or 50k—break it down into manageable milestones) as fast as possible. That should be your top priority.
What do you do if these goals don’t seem achievable?
Embrace your most powerful wealth-building tool: time.
Time, not money, is your most important wealth-building tool. The younger you are when you start investing, the more chance you have to build wealth. That’s why even investing 1% more of your income could make a noticeable difference to your financial future if you start investing in your 20s.
While you should aim to invest 20–25% of your income as soon as possible if you want financial abundance, that’s going to be very difficult for most people in their 20s, which is why you need to embrace the power of small changes that compound over time.
For example, if you invest just $35 more a month for 40 years, you will have contributed $16,800, but you could potentially have $122,185 if you get an 8% rate of return:
And if you invest $100 a month, you will have contributed $48,000, and you could potentially have $349,100 after 40 years if you get an 8% rate of return:
But if you invest $100 for just 30 years instead of 40 years, you could potentially have $149,035. So even though you only contributed $12,000 more in this second scenario, you could end up with nearly $200,065 more just because you started investing 10 years earlier.
Time is your best friend when it comes to investing. If you’re a low-income earner, you absolutely have the potential to build massive wealth simply by starting to invest early in life.
Focus on increasing your investment rate by 1% at a time.
If you feel overwhelmed by the thought of trying to meet any of these investment goals, know that a 1% increase in your investment rate could still generate substantial amounts of compound interest even if you are a low-income or median-income earner.
If you’re feeling overwhelmed by the idea of investing 20–25% of your income or by meeting certain investment milestones, just focus on increasing your investment rate by 1%. And then another 1%. And so on.
Also, know that you are NOT a failure if you can’t invest 20–25% of your income if you’re in your 20s—the reality is that very few people can reach that investment rate when they’re so young. Think of that 20–25% investing rate as a work in progress rather than a test that you either pass or fail.
As long as you invest something in your 20s, you are doing your future self a huge favor. The worst thing you could do is not invest anything because you’re overwhelmed because your investment rate isn’t high enough. If you earn a low income, your 20s are the absolute best time for you to invest if you earn a low income because very little money goes a long, long way due to the power of compound interest.
If you adopt the mentality that every dollar counts—that is, no amount is too small for you to invest—you might be surprised at just how much progress you can make toward your investment goals.
Focus on increasing your earning potential.
If you’re in your 20s, one of your top priorities should be focusing on building your career—or finding a career—and increasing your earning potential. If you’re not earning enough money to put you on track to meet your investment goals, identify skills that you could learn to increase your income and invest in yourself by learning those skills and by acquiring credentials that will boost your income.
When you’re in your 20s, the work you put into increasing your earning potential is as equally important as—if not more important than—your investment rate. If you don’t deliberately take steps to increase your earning potential, it’s very easy to find yourself approaching 30 and struggling to earn a thriving wage.
Instead of worrying about what you’re not doing (i.e. meeting your investment goals), focus on what you can do to increase your earning potential. Here are some things that you can do to get started on increasing your earning potential:
- Identify careers that appeal to you that also pay well enough for you to hit your financial goals. Research salaries for entry-level, junior-level, and senior-level positions to make sure that this aligns with your money goals.
- Use Linkedin or another job board to find at least 10–20 job postings for entry-level and junior-level positions in that career track.
- Write down a list of all of the required skills and qualifications for those job positings.
- Do research to see where you can acquire those skills so that you can qualify for those positions. This could mean:
- Enrolling in an accredited certificate program for adults looking to change careers—I highly recommend this option because it’s so much cheaper than traditional college and you’ll get hard skills that will qualify you for a specific career track.
- Pursuing a college degree that will lead to a highly specialized skillset and a significant pay increase.
- Taking community college classes.
- Taking classes or webinars from a professional association in your field.
- Completing courses on Coursera, Udemy, or Skillshare.
- Reading books or articles or watching videos to learn a specific skillset.
- Consistently pursue opportunities that get you work experience in your desired field.
- Track and quantify your accomplishments at work so that you can put them on your resume.
If you earn a low income, increasing your earning potential matters much more than cutting expenses. If you’ve cut your expenses to the bare minimum and still can’t meet your desired savings/investing rate, you need to follow the above steps to increase your earning potential. Once you increase your earning potential, it will be much easier to meet your investing goals.
If you strive for a 20–25% investment rate, set monthly or lump sum investment goals based on how much you want to have in retirement, meet age-based investing milestones, and strive to reach 100k in investments as soon as possible, you’re well on your way to achieving financial independence.