So this topic isn't exactly Buzzfeed entertainment. We'll try to keep it spicy, because that will be the flavor of your old person years if you follow this advice.
Start a Retirement Account
Some of us are already dreaming of a cushy retirement: Taj Mahal RV, National Parks up the wazoo, and lots of card games. I want to live like a queen in retirement. I'm shooting to retire well before I qualify for senior discounts. That means planning ahead. My empress life depends on my savings account.
Your twenties are often a jolting reality check of real life, and I hope one of your jolts includes a disenchantment with social security. Don't count on living off money from the government in your retirement. If social security is still pouring out cash in forty years (likely?), it will be a nice Christmas present. Until then, fend for yourself, save for yourself, and go about your retirement like a tenacious honey badger.
How much? My wise old father who is on track to retire before age 60 saved 13-15% of income starting in his early twenties. I would advise a similar percentage if you can manage it, though that is definitely on the high end. Rule of thumb would be to tuck away as much as you can to retirement, especially now so it has 40 years to glean the benefits of compound interest.
Now let's talk about the options:
Roth IRA
401(k)
403(b)
I'm going to talk about these three because they're quite common, but for special cases try the IRS website, though it may be lacking in wit.
Roth IRA
Named after: William Roth, the Delaware senator who birthed this idea. Thanks Will. IRA=Individual Retirement Account.
What it does: Gives you an umbrella to house your retirement money. Your money is taxed before it goes in, so when it comes out in half a century it won't be taxed.
Why you should pick a Roth IRA: By taxing your money now, you protect your nest egg from a possible higher tax rate down the road. I'm in heavy favor of this one.
401(k)
Named after: the subsection in the tax code where the rules can be found. The creativity is baffling, I know.
What is does: Another safe haven for your retirement money. Your money is not taxed until it comes out. Many employers offer "matching" incentives, so if you chip in $300 of your paycheck, your employer will offer to match your contribution. A common match is 50 cents on the dollar, up to roughly 6% of your paycheck (but these numbers vary quite a bit from company to company).
Why you should pick a 401(k): If your employer offers a match, you should definitely contribute to your 401(k) account; it's basically free money. Just be ready for a hefty tax when you take it out. Another great perk of a 401(k) is the money automatically comes out of your paycheck and set aside, before you can even miss it.
401(b)
Named after: the subsection in the tax code where the rules can be found. Those clever folks.
What it does: Again, it's an account for you to save for retirement with special tax rules. It's the same as a 401(k), but this is what it's called for the good souls of the world: teachers, nurses, pastors, those who work at a non-profit, etc. Of note: the benefit goes to the companies administering these plans to save on administrative expenses, rather than the employees themselves.
Why you should pick a 403(b): The same reason as why you would pick a 401(k): employer match and payroll deduction.
Pensions
Pensions, although nice, are the wombats of our time. Cute and cuddly, but just about extinct to our generation. I'll save my words.
So there you have it, a quick intro to the world of retirement accounts. My husband and I have an assortment of retirement plans (because you can definitely have more than one), and we plan on retiring fat and happy. Yes, it's annoying and far too mature for my liking to think so far in the future, but I think any wise old sage would agree.
What now?
1. Make sure you have a retirement account. Check out your employer-sponsored plan and make sure you're enrolled in automatic payroll deduction.
2. If you don't have an account, try opening a Roth IRA. E*Trade and Fidelity both have great online resources and low fees. Again, set up automatic deduction so you save without lifting a finger.
3. Up your savings percentage, even just a single point.
4. Start dreaming of retirement.