If I Were in My Early 20s: 5 Things I'd Do Differently With My Retirement Savings

I’ll be the first to admit that the economic and workplace circumstances surrounding my generation are much different from the circumstances facing 20 and early 30-year-olds today. For a Baby Boomer like myself, working at one job for 30 to 40 years, having access to a pension, investing incrementally into a 401(k), and Social Security benefits were often enough to retire comfortably.

In today’s world, a major student loan crisis, rising inflation, job insecurity, job-switching, and the uncertain future of Social Security are just a few of the financial challenges many millennials and members of Gen Z are faced with. Yet they must prepare themselves for their inevitable retirement, developing new strategies to cope with the current and ever-changing economic realities. Witnessing the changes of the last decades has led me to ask myself: 

If I were in my 20s and early 30s, what would I do differently with my retirement savings to prepare for the current economic landscape we’re seeing today? 

Because of so many varying factors, the traditional model of saving for retirement employed by my generation is no longer relevant to younger generations. With the knowledge I have now, here are 5 things I would do differently with my retirement savings if I were in my 20s and 30s.

1a. Roth IRA vs Traditional IRA 

If I were in my 20s and 30s, I would likely seek to open a Roth IRA given the benefits the account holds compared to the traditional IRA. Generally speaking, many folks have a basic understanding of what an Individual Retirement Account (IRA) is: a tax-advantaged retirement savings vehicle that allows you to invest in various traditional securities. But deciding which IRA is best for your situation is something I would give a bit more thought to. 

By and large, a Roth IRA may be the more suitable option for young investors compared to a traditional IRA because of the way contributions are taxed. The main benefit to a Roth IRA is that you pay taxes on your contributions now. Although you won’t see any immediate tax benefits in the year that you contribute, all future withdrawals from the account will be made tax-free. 

So if you’re investing in your 20s and 30s, you probably have yet to maximize your full earnings potential. This means you’re likely in a lower tax bracket now than you will be in the future, and you won’t benefit as much from the immediate tax deductions that you receive from a traditional IRA. Additionally, because you’ll likely be in a higher tax bracket in the future, you’ll pay less money in tax now than you will when you actually withdraw the funds for retirement income.

When you’re investing in your 20s and 30s, you also have the number one asset on your side: time. As your earnings begin to compound over decades, you will not owe taxes on the growth made within the account when you withdraw.

1b. Me, Inc. 401(k)

A major generational change is a belief in “one employer for life”. As we have already witnessed, our work skills and market talents are no longer geographically restricted. Add a counterbalance of employers under pressure to drop employee benefits due to out-of-control costs, and you have the perfect case for transient (i.e., contract) employment. 

Simply put, you are going to “work” for several employers during your life, and most likely transition through several careers as well. Taking control of your payroll and setting up your own 401(k) plan allows you to save massive retirement funds at an accelerated rate. If you add Self-Directed and Roth portions to the 401(k) you are able to focus on alternative income-producing investments. 

Your goal for retirement is to focus on income replacement as priority one and wealth creation as a second priority. If you were retiring today, you would choose an income replacement retirement portfolio generating $15,000.00/month in income that doesn’t require you to touch principal. Its value would need to be about $1,800,000.00. 

To obtain that same amount in a passive stock portfolio, drawing down 4% a year, you would require a value of $4,500,000.00.  If those numbers are not incentive enough, then let's add in your lifespan factor. You will live longer than the current baby boomers, so you need to plan to have consistent retirement income to have 30 or more years of living.

2. Start Saving for Retirement as Early as Possible

The FIRE (Financial Independence, Retire Early) movement, a growing trend among young people, is the desire to retire—or achieve financial independence—early (before age 60). This movement makes use of retirement savings strategies outside the standard retirement solutions and is an attractive option to people of all generations. 

To make achieving early retirement a reality, I would start saving as much as I could for retirement as early as possible. The FIRE movement focuses on employing fairly frugal living strategies for 10 to 20 years so as to maximize retirement savings. If I could go back to my 20s and early 30s, I would make sure to take a closer look at my spending so that I could invest as much as possible into my IRA and leverage the power of compound interest.

3. Think About Risk Differently

As a young investor in my 20s, I would be a bit more ambitious and take more calculated risks with my investments. Compared to an older investor who has to be more conservative in their approach, I would have a much longer time horizon to make up for any losses. Ultimately, I wish I would have worked with a financial advisor who could have helped me be more strategic about my investments in my 20s and 30s.

While I do not suggest gambling or squandering my hard-earned money foolishly, I simply acknowledge that I had a bigger window to take risks for an even higher reward when I was investing in my 20s. After watching the markets fluctuate for decades, market volatility no longer scares me as much as it did when I was a young investor—now, I know it’s simply a fact of life and the markets historically trend upwards. 

The question of what I would invest in during my 20s and early 30s comes next. 

4. Invest in Alternative Assets

Interesting times call for interesting solutions. If I were in my 20s and early 30s, I would find a way to diversify the assets within my retirement portfolio outside of the status quo. For the average investor, traditional assets like stocks, bonds, mutual funds, and ETFs alone are slowly becoming an unreliable means toward achieving a comfortable retirement.

Instead, I would look to invest in more income-producing assets. Income-producing assets offer higher cash flow and appreciation that better keeps up with inflation and can potentially outpace returns on traditional assets in the long term. Income-producing assets also provide retirees some peace of mind that they will still continue to receive income during a bear market when traditional assets are down. Some common examples of alternative assets include: 

In most cases, the issue that arises is that standard IRA accounts do not allow alternative investments to be made within them, so many investors believe they can’t use retirement savings to make these types of investments. There is a solution to this.

5. Open a Self-Directed IRA

Regarding my financial retirement plan, I would definitely avoid taking a passive approach when it comes to my investments. You can invest in alternative assets through your IRA by investing with a self-directed IRA (SD-IRA), which allows you to take more control of your investments and your future. 

If I were investing in my 20s and early 30s, I would take ownership of my financial future by pairing this savings vehicle with more traditional retirement savings accounts. The SD-IRA is available as either a traditional or Roth IRA and offers a wide range of investing options outside of the typical traditional asset. I would also reap the benefits of a tax-deferred or tax-exempt retirement account.

There is a catch, however. SD-IRA’s are best suited for knowledgeable investors who have the discipline to research their holdings thoroughly. While you are open to a world of different investments that would not otherwise be privy to with a regular IRA, the responsibility falls squarely on your shoulders. That is why I would prioritize financial education to invest in them over the long term.

At Chicago Trust Administration Services, we’ve been helping investors self-direct their futures for seventeen years by investing in alternative assets through a self-directed IRA. We help you make transactions in a fast, IRS-compliant manner so you can spend more time researching your various investment opportunities. To see how we can help, we invite you to schedule a complimentary meeting with us by calling 312-869-9394 or emailing steve@ctasira.com.

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*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.

Steven Miszkowicz