If you’re ages 25 to 34, you’re probably either just getting started in your career or have found your place and are starting to move up the ranks. This is a great time to start saving for retirement, if you haven’t already. Given the decades standing between you and retirement, you will have a head start on ensuring you live your golden years in comfort and financial security if you start saving now.

1. Understand Your Options

When you’re just getting started with retirement savings, it’s important to understand the variety of different accounts available to you, including tax-advantaged accounts.

Some of these accounts are offered by employers, while you can open and manage other types of retirement accounts on your own. The accounts that you can potentially use will depend largely on your employment situation.

401(k), 403(b), or 457(b) Plans

For many younger investors, a workplace retirement plan is a first step in retirement planning. Three employer-sponsored plans you might be offered are 401(k), 403(b), and 457(b) plans, each named for the section of the tax code that authorizes it.

Each of these retirement plans is available to a different type of worker, as outlined in this table:

Retirement Plan	Offered by
401(k) plan	Private-sector companies
403(b) tax-sheltered annuity plan	Public schools, churches, and 501(c)(3) charitable organizations
457(b) deferred compensation plan	State and local governments, and tax-exempt nongovernmental 501 entities

These plans have plenty of similarities, despite being offered by different types of employers. For example, they both offer traditional or Roth contributions, which differ when it comes to their tax advantages.

• Traditional: Contributions are withdrawn pretax, reducing your taxable income for the current year. Money grows tax-deferred in your account, and withdrawals are subject to ordinary income taxes.
• Roth: Contributions are made with income that has already been taxed. Money grows tax-free in your account and can be withdrawn tax-free during retirement.

These employer-sponsored retirement plans are also similar in their contribution limits. For all three accounts, you can contribute up to $22,500 per year for 2023. The limit increases to $23,000 for 2024. All three plans also allow your employer to make contributions on your behalf.

Individual Retirement Accounts (IRAs)

An individual retirement account (IRA) is a type of account you open on your own through a brokerage firm rather than through an employer. Like a 401(k) or another employer-sponsored plan, you can choose between traditional and Roth contributions. In 2023, you can only contribute $6,500. The limit increases to $7,000 in 2024.

It’s also worth noting there are some restrictions with IRAs that don’t exist for employer-sponsored retirement plans. If your income is too high, you may be prohibited from deducting your traditional IRA contributions or from contributing to a Roth IRA.

Self-employed Retirement Plans

There are several types of retirement plans specifically designed for self-employed individuals and/or small business owners. You can use these accounts if you have your own business, even if you also have full-time employment with access to a retirement account.

• SEP IRA: A Simplified Employee Pension (SEP) IRA allows business owners to contribute up to 25% of their pay to a pretax retirement account. However, if you contribute to your own account and have employees, you must also contribute the same percentage to their plans.
• Solo 401(k): Officially known as a one-participant 401(k), this plan works similarly to any other 401(k). You can only use it if you have no employees other than you or your spouse, but can contribute up to $66,000 in 2023 ($22,500 as your employee elective deferral and up to 25% of your compensation as your employer contribution). In 2024, the limit increases to $69,000 and $23,000, respectively.

2. Take Advantage of Employer-Sponsored Retirement Accounts

Several factors make employer-sponsored retirement accounts such an attractive option for retirement savings. First, employer-sponsored retirement accounts have far higher contribution limits than an IRA that you could open on your own. In 2024, you can contribute up to $23,000 to your 401(k) but only $7,000 to your IRA. These higher limits can help you reach your retirement goals more quickly. Contributing up to the maximum can be part of a plan to help you achieve early retirement or a more luxurious lifestyle in retirement.

Another common perk of employer-sponsored accounts is that they may come with matching contributions from your employer. Many companies will match an employee’s contribution up to a certain percentage of their salary. For example, a company might match your 401(k) contributions at a rate of 50% up to 6% of your pay or at a rate of 100% up to 3% of your salary.

“If your employer offers a 401(k) match, take it—otherwise, you’re leaving free money on the table,” , CEO of Sexton Advisory Group in Temecula, California, told Investopedia. “Your employer match can give you a leg up on your retirement savings plan and bring you closer to your financial goals faster.”

3. Automate Your Retirement Contributions

Automating your retirement contributions is the simplest way to ensure you reach your investment goals each month. Automation has a few distinct benefits. First, automating your retirement contributions ensures your contributions will happen consistently. It’s easy to delay contributing and use the money for other purposes if you don’t automate your savings. When your contributions are automated, there’s no more action required on your part. “It allows you to ‘set it and forget it,’ minimizing the amount of tasks around your financial responsibilities every month,” Sexton said.

Automation also makes it easy to plan your annual contributions ahead of time. Let’s say you know you want to max out your 401(k) contributions for the year. You could set up automatic contributions of $1,917 per month and know that by the end of the year, you’ll have contributed the maximum of $23,000.

4. Create an Emergency Fund

Having a well-funded emergency fund can directly affect your ability to reach your retirement goals.

“It is important to realize that unexpected expenses will occur throughout your life, including retirement,” Sexton said.

First, your emergency fund helps you avoid disruptions to your finances that could derail your retirement savings efforts. You can use your emergency fund to cover an unexpected expense like a medical bill or car repair rather than divert money that would have otherwise gone into your retirement account.

An emergency fund can also help you avoid having to withdraw money from your retirement account, either as an early withdrawal or a loan. Retirement withdrawals and loans have some financial consequences, including taxes, penalties, and/or interest. And, of course, money that is no longer invested will no longer grow. “Not only can [an emergency fund] lessen the financial blow of an unexpected life event—like a medical diagnosis or an accident—it can also prevent you from accumulating debt in your golden years,” Sexton said.

5. Use the Power of Compounding

Investing early and often is about both the amount of money you’ll be able to contribute to your retirement accounts and how much that money can earn. When you start saving for retirement earlier, you can take advantage of the power of compounding.

Compounding is when the money you’ve invested earns money, and then the money you’ve earned also begins to earn money. Here’s an example of how compounding works:

Let’s say you contribute $500 per month starting at age 25 until you retire at age 65. If you put that money into a bank account that doesn’t earn interest, you would save $240,000 in your 40 years of saving. But what if you had invested that money instead? Let’s say you put that same $500 per month into a retirement account that earned an average annual return of 8%. At the end of the 40 years, you would have amassed savings of more than $1.5 million. Compounding can benefit you anytime during your working life, but starting to save in your 20s and 30s will give you an advantage over saving later, as your money has more time to grow and compound than it does if you wait until your 40s or 50s to start investing.

The Bottom Line

If you’re a 25- to 34-year-old saving for retirement, you have a good start to building your nest egg. Now that you’ve taken that important step of saving, you can use a few strategies like automating your investments, building an emergency fund, and taking advantage of your employee perks to stay on track to reach your retirement goals.