Depending on what your goals are, the level of your income, your spending level, and how much you’re willing to sacrifice, it’s possible to retire early. Even if you don’t quite make it to your target nest egg amount, the money already invested can happily compound for longer while adding more contributions to reach your target number.

In this article, we’ll lay out some strategies that you can deploy to save for your retirement throughout your 20s and 30s.

Know What is Required

Hitting a goal is all about knowing what it is before embarking on it, otherwise, you’ll never get there. However, it can be difficult to estimate a ballpark figure. Instead, use the retirement calculator from Wealthsimple to answer the question - how much money do I need to retire? Wealthsimple’s retirement calculator can help you figure out what will be needed to save to reach a target retirement level. They also offer free investing services using a mobile app to trade stocks, so they work with budding wannabee retirees all the time.

Don’t Be Discouraged

Once you’ve used the retirement calculator and know how much will be required to save and invest throughout your 20s and 30s, it can seem daunting. For many people, the amount won’t seem possible on their current salary, and perhaps it’s not. But that assumes that the salary and any other available income will remain unchanged over the next two decades. History shows that that’s usually not the case, with most people seeing increases when they work hard on it.

Believe that you can achieve your planned retirement. It may not exactly take the form and structure that you set out to get, but major forward progress should eventually lead to attaining the goal.

Plans May Change Over Time

Planning your finances in your early 20s is difficult because, with little experience as an adult, it’s genuinely difficult to plan correctly. A fifty-something seems like they have one foot in the grave already, but that’s just a matter of perspective (a 50-year-old likely still has 30+ years ahead of them).

Due to your relative youth, plans will begin one way and change over time. For instance, you could have a child, or get married in a lavish wedding, and then there’s a whole family to take care of. There may be periods of unemployment due to unexpected events too. As such, the amount that it’s possible to save for the future may reduce or change over time and the years to retirement may get extended.

Therefore, accept that we make the best plans now and that plans will change over time. Adapt with them, rather than being discouraged by this reality. If 2020 has shown us anything, it’s that life itself is unpredictable and planning is necessarily a little more fluid than we’d often like to admit!

Keep Investing Costs Down

Investing costs have several parts rather than a single cost. There are brokerage or custodial fees, trading fees to buy stocks or an ETF, mutual fund sales loads (commissions, essentially), front-end loads, back-end loads, and the annual cost of a mutual fund or other managed investment too. Even index funds have a yearly fee.

The S&P 500 Index as a Measure of the Market

The long-term investment returns of the S&P 500 index are around 10% nominal and 7% after inflation, but there have been decades where a loss was sustained. Other decades saw a double-digit percentage of total returns (capital growth + dividend income). Also, the ravages of inflation which have varied widely over the decades have had a major impact and should not be ignored.

The Impact of Investment Costs

It’s important to understand the above reality because, while double-digit annual returns mean that investment costs make a smaller difference, in a low return or losing year, fees take a big chunk out of your remaining capital. Then you notice it!

Don’t Delay Your Retirement Due to Fees

The cost of investment fees is significant. Think about it. When you’re only getting 7 percent (or less in many mutual funds that fail to beat the market), then 1-2% in fees annually is a considerable amount. They can significantly delay your retirement if you overpay because the capital lost to overly generous fees must be replaced with new savings from future work.

As such, it will require extra years before you can quit. So, make it a keen focus to keep the fees down as low as possible unless it’s proven that they positively contribute to the bottom-line.

Take Advantage of the Benefits of Youth & Vitality

What’s lost to the young and may only start to become obvious in your late 30s is that health and vitality are not a given. Plenty of people get sick when they’re young or suffer from other issues that affect their ability to work productively. In other cases, people suffer from repetitive strain injuries when working on computers for too many years, finding it painful to keep working when they’re older. While it’s easy to believe that “this won’t happen to me,” it’s worth at least acknowledging that it’s a possibility.

Looking beyond this, you won’t be young forever. While you have plenty of energy to work long hours now, to go out for drinks on a workday evening, and bounce back the next morning, people struggle to do that in their 40s and beyond. They just don’t rebound in the same way. Also, they have a declining amount of energy as they age – it’s not just something that affects the 60s and older age groups. So, your ability to continuing working will likely diminish with age with younger people outperforming your older self.

Therefore, there’s a real benefit to pushing hard when you’re still young enough to make positive net worth gains. While the compounding of early saving and investing helps, having enough in the tank to pull all-nighters in the pursuit of worthy goals is possible now and likely won’t be later in life. Take advantage of that!

Increase Your Total Income

You can also aim to increase your total income over the years in the following ways:

Job Progression

Don’t remain in the same job or industry if it’s not what you want to do or there’s no progress being made. It’s important to make strides in an upwards trajectory over the years to increase your earning potential.

When considering additional educational programs, figure out whether it will provide a return on investment for the cost or if you’re better off without it. Not every degree pays for itself even if it looks good on paper.

Side Hustles

Take advantage of your energy bank by starting side hustles in the evening and on weekends. Don’t just use these times for leisure.

A side hustle is a micro venture that can turn into extra income and profit to invest in your retirement. Some have a short duration whereas others have legs or can evolve into something larger than warrants migrating it to a full-blown business.

Look for opportunities in things that you’re currently good at. Do you have a hobby that’s in demand and your knowledge can be turned into something profitable?

Cut Your Cost of Living

Along with keeping investment fees low, it’s necessary to keep your cost of living low enough to provide ample cash available for investing in your retirement. Look at your salary as potential “freedom dollars” and see how many you can squirrel away for your nest egg.

Adopt a more minimalistic lifestyle where you own fewer things. Spend up on the quality of your purchases to make them longer lasting and more enjoyable to own. Then own fewer items. This also has the benefit of not needing bigger and bigger homes (or a storage unit) to store all your stuff.

Fight Against Lifestyle Inflation

If you develop yourself well, your salary will increase as your professional career runs in leaps and bounds. Even if that’s not the case because you diverted attention away to your various side hustles, the idea is to increase your total income. This way, there’s more opportunity to save.

Figuring out your target retirement value, it’s based on withdrawing 4% annually from the original sum at retirement which then gets adjusted for inflation. As such, you’ll need 25 times whatever you’ll spend annually in retirement. Why is this important?

The bigger your tastes for luxury things or a bigger lifestyle, the larger the retirement fund must be. Also, because you’re outlaying more on funding your lifestyle, there’ll be less money available to invest in your pricier retirement too. This double-whammy is hard to overcome.

Don’t let future salary increases and bonuses get lost to larger house payments and constant lifestyle upgrades over the coming years.

Eye on the Prize

A balance must be struck between enjoying the younger years and saving for the future. There’s little point in making yourself miserable by never having any fun, going on vacation, and dating. At the same time, when overspending in all these categories, it’s difficult to save very much.

Keep your eye on the prize. If the total amount needed is so large of a goal that it’s unmotivating, then divide it into $5,000 or $10,000 chunks. Then celebrate each milestone along the way. Another approach is to break down your retirement budget into spending categories and multiply that yearly amount by 25. This will tell you how much is required to fully fund a single category using your investments. Then you can mark a category off one-by-one each time your investments have grown large enough. Doing this can motivate you along the journey even if it’s a multi-decade one. Saving for retirement in your 20s and 30s is something that not enough people do. They feel like it will take too long or that they won’t retire until their 60s and so why bother. This is a mistake that they only regret later in life. Don’t make the same error in your life.