3 Easy Ways to Start Saving for Retirement (for Teenagers and Millennials)

I have no clue what retirement is like. I don’t even like to think about what retirement means.

I’m 20, I’m young, and for me retirement is way off somewhere in the distant future.

A recent report from the Insured Retirement Institute (IRI) and the Center for Generational Kinetics shed some light on the savings habits of individuals aged 20-37. According to the study, 68% of millennials are actively saving for their retirement. When thinking about retiring you also need to start thinking about finding a assisted living community. Here is a senior care community check list to help you find the right place for you.

That is awesome. That means that even though thinking about retirement is weird, people are doing it.

In this post I will outline what tools are available for you to start saving for retirement. I will stay away from giving investment advice, rather I will focus on the different ways retirement accounts can save you money and protect your future.

1. Open a Roth IRA


An individual retirement plan that bears many similarities to the traditional IRA, but contributions are not tax deductible and qualified distributions are tax free. Similar to other retirement plan accounts, non-qualified distributions from a Roth IRA may be subject to a penalty upon withdrawal.

A Roth Independent Retirement Account (IRA) is a millennials most effective tool to save for retirement. A Roth IRA is a special type of investment account. You can take the money you put into a Roth IRA and invest in Nike, Apple, Google, a mutual fund, index fund, exchange traded fund, or even bonds. You can do whatever you want with this money once it is in this account.

What makes a Roth ideal for retirement savings is the fact that you contribute after tax dollars. This means that when you withdraw earnings at age 59 1/2 or older you will not be taxed again. There is flexibility though if you want to withdraw money before your 60th birthday, you can always remove the initial capital you invested without penalty, just not the earnings accrued from that money.

A Roth allows you to contribute a maximum of $5500 a year to it, with no aggregate cap. (There is no maximum cap for how much money can be in the account).

Let’s look at an example.

Imagine you make a single $5500 contribution at age 20. 40 years go by and you did not make any other contributions to that account, but you did re-invest your dividends. How much would that $5500 be worth in 40 years? Imagine you return a measly 4% on your capital each year. How much would that add up to in 40 years?


What if you could afford to contribute $5500 each year from 20 to 60 years old. How much would that money be worth when you are 60, let’s again assume a small return of 4% annually?


And, let’s say we manage to do well in the market and hit a 7% return on our investment each year. What would that put us at?


Of course, these same returns could be made in a traditional investment account, but remember the benefits of the Roth IRA. In our last example we invested $220,000 dollars from age 20 to age 60. Of that, our investments made a little over 1 million dollars. In a traditional investment account that income would be taxed at between 15% and 20%. With the Roth IRA that income is not taxed.

That is great, a Roth IRA shields you from being taxed on capital gains when you are older. The benefit there seems pretty self-explanatory. But what if you can’t afford to invest $5500?

2. Open a myRA


Unlike other Roth IRAs, myRA has features designed to make it a starter retirement savings account. myRA is invested in a single United States Treasury retirement savings bond, which will not lose money and is backed by the United States Treasury. Money that you put in your myRA will earn interest until your account reaches $15,000 or 30 years from the day you first fund the account (whichever comes first). The account balance will then be transferred to a private-sector Roth IRA, where you can continue to invest your savings and make additional contributions. You can also transfer or roll over your myRA to a private-sector Roth IRA of your choice at any time.

If you are not capable of investing $5500 at a time in a Roth IRA then the myRA is for you.

The myRA is a federally backed retirement savings account. The myRA is intended for low-income individuals who cannot afford to save large chunks of money at once.

The myRA has the exact same tax benefits of the Roth IRA. You contribute after tax income and are able to remove that money after age 59 1/2 or older without being taxed.

The key differences between the Roth IRA and the myRA are:

  • Maximum total contribution of $15,000
  • 30 year max lifespan of the account
  • You do not choose where the money is invested

Contributions are invested in the United States Treasury Bond. The myRA website explains how that works:

The money you put in your myRA account is invested in a United States Treasury savings bond, that safely earns interest at the same variable rate as investments in the Government Securities Fund for federal employees. The return for these investments was 2.31% in 2014 and 3.19% over the ten-year period ending December 2014. Past performance is not a guarantee of or prediction of current or future performance.

After saving money in your myRA you can roll it over to a Roth IRA and continue saving.

3. Use your 401k

definition of a 401k

A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Employers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.

If you have just completed college and landed your first salaried position you should be investing in your company’s 401k plan.

With a 401k your investment options may be limited, and there are most likely restrictions on when and how you can withdraw assets without penalties. But, 401k plans generally are matched by employers.

Matching is when your employer contributes money to your retirement account. The most common practice is for employers to match 100% of the first 6% you contribute.

For example, if you make $50,000 a year and contribute $3,000 (6%) to your 401k your employer would contribute another $3,000 as a match. You just made $3,000 by saving for your retirement. Independent retirement accounts cannot provide you this benefit, only 401k’s and other employer related retirement accounts.


Saving money for the distant future is not all that sexy.

Just know that by starting young you are setting yourself up for success. No matter what investment vehicle you choose your future self will thank you.

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About the author

I'm Zach Shefska, welcome to my personal website. I'm currently working on CarEdge. I like to travel, write, and make pottery.