This Timeline Shows You Exactly How to Save for Retirement

In your 20s: Get started

Oh, the temptations of life with a full-time paycheck for the first time ever. So many cool things to do! So much cool stuff to buy! Not so fast, money experts say. Your financial priorities right now should be to set up a budget (here’s how to do that) and establish other good money management habits, build a solid credit history, and begin to save. “How much should I save for retirement?” may seem like a weird question in your twenties, but the power of compound interest is on your side, so every dollar saved will grow and grow. Pay yourself first: Use direct deposit to save 10 percent right off the top of every paycheck.

If your employer has a 401(k) retirement plan, sign up, especially if the company offers a match. You’re essentially turning down part of your paycheck if you don’t take advantage of this. This retirement calculator on Bankrate.com shows that putting 5 percent of your pretax salary into a 401(k) with a 50 percent match, starting at age 24, will turn into $985,348 by retirement time. That’s $2,000 a year on a $40,000 income, about $5.50 a day. Skip your daily caramel macchiato and retire a millionaire!

Other financial priorities for new grads: Build an emergency fund of at least three months’ salary, so unexpected expenses don’t put you on the treadmill of credit-card debt. Then turn your savings toward a short-term goal, like a wedding or down payment on a home. If you get a windfall—a bonus or tax refund—use this rule of thirds: a third into savings, a third to pay down your student loan debt, and the final third to spend on something great.

Milestones: Start saving 10 percent of each paycheck and aim to have the equivalent of your annual salary saved in a retirement account by age 30.