In your 20s? How to afford your new life—while saving for retirement

You’ve landed a great job and this awesome thing called a paycheck—yay, you! You also have student loans to pay back, you just financed a dependable but used car, and your parents are saying you need to save for retirement. Wait. What? Why? How are you supposed to do all that?

Adulting is hard—there’s so much to pay for! But by setting goals and having a plan —you can figure out how to be financially responsible and have some fun, too.

Having a plan makes adulting easier

Getting a job was your goal, and you achieved it. Now that you’re on your own, however, you have new financial responsibilities: rent, student loan payments, insurance, car payments, food, utilities, phone, internet, streaming services, and retirement savings. But what about being able to enjoy your independence?! 

We’ll help you figure out how you can afford your life today—then explain why you also have to save for retirement.

Plan #1—a budget

Having a plan helps make everything easier. The first plan you’ll need is a budget. Three quarters of people under age 36 say that following a budget would reduce their financial worries.1 A budget gives you guidance as you decide what you can and can’t afford to do or buy—so you don’t get into trouble with overdrawn accounts and credit cards. 

You can create your budget on a piece of paper, spreadsheet, app, or online—whichever works for you. If your computer has Excel, just open the program, click on “New,” and search for “Budget” (this might differ by computer system). Then choose a template from the budget options and save it. If you’d rather use an app, search “Budget” in the Apple App Store or Google Play and read the reviews to decide which will work best for you. 

You should also add in a line on your budget for emergency savings, as 4 out of 10 millennials are worried about not having enough saved for emergencies.1 By setting aside a small amount every week, you can build an emergency fund to rely on when the unexpected happens.

Plan #2—a plan to pay back student loans

If you’re stressed by your student loans, you’re not alone. Sixty-nine percent of the college class of 2019 took student loans.2 Almost half said their loans affect their ability to cover their monthly expenses or purchase a home, and 65% said it keeps them from saving for retirement.2

So, you need a plan to pay back your student loans. You may be able to lower your interest rates, change your payment terms, and/or consolidate some of your loans to make them easier to manage. 

If you have more than one loan, make a list of how much you have in each and what the interest rates are. Then go online and research some options to find out if you can find lower rates for any of your loans. Combining the amounts from multiple loans may also help you get a lower rate.

You should also ask your employer if they can help. Some employers will help you pay back your loans, and others will pay a certain percentage of your salary into your retirement plan while you pay back your loans. 

Then go back to your budget and update your monthly student loan payment—hopefully this gives you more money to spend (or save) every month. 

Plan #3—saving for retirement, even if you have to start small

Retirement may seem far off, and it is. But consider this—over the next 40 or so years, you have to save enough to pay for your living expenses for 10 to 30 years in retirement. Although 47% of people currently saving for retirement started before they turned 30 years old, 70% of people who are saving for retirement say they should have started before age 30.3

If you have student loans to pay off, you need to prioritize them, so that you don’t default on them. But if your employer offers a retirement plan, save as much as you can, even if it’s only 1% of your paycheck to start with. 

Many companies offer a matching contribution as part of their 401(k) plan—it may sound complicated, but pay attention, because it’s additional money in your account. Retirement plan match formulas look like this, although the percentages in the formulas vary widely among plans:

  • 50% of the first 8% 
  • 100% of the first 3% and 50% of the next 6%

This means that, up to a certain percentage of your salary, your employer will contribute to your retirement plan, if you contribute a percentage of your salary as well. 

One in three people eligible for an employer match are missing out on this extra money.4 Don’t leave that money on the table if you can help it—save as much as you can to get some or all of the employer match.

Planning your finances can help you today—and tomorrow

Creating a budget and saving for retirement are pretty boring topics, am I right? But if you want to be able to afford to have fun while paying for all the expenses that come with adulting, having a plan can help. It can help you figure out how you can pay off your student loans, understand whether you can go out for dinner or just a movie, and help you start saving for retirement. Because you’ll want to be able to afford to have fun then, too.

1 In July 2020, John Hancock sponsored our seventh annual financial stress survey. Working with the respected research firm Greenwald & Associates, we surveyed more than 589 workers to learn more about individual stress levels, their causes and impacts, and strategies for relief. John Hancock and Greenwald & Associates are not affiliated, and neither is responsible for the liabilities of the other. 2 "A Look at the Shocking Student Loan Debt Statistics for 2020," January 15, 2020. CFP Board Retirement Presentation, Morning Consult, April 15, 2019. 4 “What Is A 401(k) Employer Match?”, money-rates.com, October 22, 2020. 

The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made herein.

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