Starting early is by far the most powerful advantage in retirement planning. Someone who begins at 25 needs roughly half as much per month as someone starting at 35 to reach the same balance, entirely due to compound growth.
Understanding Retirement Accounts
A traditional 401(k) allows pre-tax contributions that grow tax-deferred. The 2025 contribution limit is $23,500. A Roth IRA uses after-tax dollars, but growth and withdrawals are completely tax-free โ the 2025 limit is $7,000. For young investors in lower tax brackets, the Roth is often superior because you pay taxes on the seed rather than decades of growth.
The Power of Starting Early
Alex invests $500/month from age 25-35 (10 years, $60,000 total). Jordan invests $500/month from age 35-65 (30 years, $180,000 total). At 10% average returns, Alex has ~$2 million at 65 while Jordan has ~$1.1 million โ despite investing three times less. That is compound growth in action.
Building Your Strategy
For young investors, the optimal strategy is typically 90% in diversified stock index funds and 10% international. Target-date funds automate the shift toward conservative allocation as you age. The priority order: capture full employer 401(k) match, maximize Roth IRA, then maximize 401(k).
Common Mistakes to Avoid
Not starting is the costliest mistake. Others include not capturing your full employer match (free money), investing too conservatively when young, cashing out 401(k)s when changing jobs, and failing to increase contributions as income grows. Also plan for healthcare costs โ HSAs offer triple tax advantages.
The best time to start planning for retirement was yesterday. The second best time is today.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Read our full disclaimer here.