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5 Things Smart 20-Somethings Are Doing to Save for Retirement

07/24/2014 04:36 pm ET | Updated Sep 23, 2014

For some of us, the thought of retirement conjures up images of traveling to fun, exotic destinations. For others, pure relaxation comes to mind. But for too many millennials in their 20s and early 30s, retirement simply isn't a topic of conversation.

As the U.S. economy tries to right itself after a rocky six years, it isn't surprising that many young people haven't given much thought to retirement. Indeed, 15.5 percent of 18 to 29 year olds are unemployed, according to a study conducted by Generation Opportunity, a non-partisan youth advocacy organization. Still, it's worth keeping in mind that the earlier you start saving, the smoother your retirement will be.

1. Being thrifty

It can't be said enough: live within your means. If you can stay as debt-free as possible, you're doing yourself a huge favor. This means occasionally skipping that Iced Caramel Macchiato Grande before work. Or passing on those pricey designer jeans. Forty years from now, you'll be glad you developed a lifelong habit of thriftiness.

Do your best to pay your credit card bills in full each month. Other than your student loan debt, don't carry additional loan balances.

Make sure your health care is covered. If your employer doesn't provide coverage, consider staying on your parents' plan if you're under 26. Alternatively, you could obtain a plan through the Affordable Care Act.

Set aside a little from each paycheck until you've accumulated a cash reserve equal to three-to-six months' of living expenses.

2. Investing wisely

According to financial planner Matthew Fassnacht, "You can't deny the value [that] compound interest has on returns over time. So start investing what's feasible for you as soon as you have earned income."

The operative phrase of that advice is "investing what's feasible for you." Don't think you need to put away a lot of money every month -- thanks to compound interest, a little can go a long way. Compound interest is the steady, cumulative increase in the amount of interest you earn over time. Every dollar you save today will be worth about $20 by the time you're ready to retire.

Knowing that you don't need to put away tons of money per month can help you set realistic goals for yourself, which is an integral part of saving for retirement.

3. Setting attainable goals

As with anything in life, it's crucial to set realistic saving goals for yourself. If these goals are attainable, you're more likely to meet them.

John Daly, a financial advisor, thinks millennials should stash away about 10 percent of their gross income every month. If that's too much, 5 percent is an acceptable starting point, with the idea being to gradually increase that figure to 10 percent. Of course, if you feel you can allocate more than 10 percent of your monthly income toward savings, all the more power to you.

Most young people, however, will probably start on the low side of things. And that's totally fine. Saving for retirement is quite a bit like training for a marathon. The first goal of a budding runner shouldn't be to run five miles a day at a blistering pace. Instead, the runner's primary objective should be to get off of the couch and run, say, half a mile a day, with the expectation that he or she will be able to increase his or her daily distance over time.

The same goes for saving money for retirement. It's all about getting off of that proverbial couch and building healthy habits.

4. Maximizing their 401(k) plans

Speaking of healthy habits, maximizing your 401(k) plan is another painless way to save for retirement. One of the great perks of a full-time job is that your employer will probably match your 401(k) contribution up to a certain amount.

Although employer contributions vary from company to company, many employers will match half of an employee's contributions up to the first 6 percent of his or her salary. If this is the case at your company, you should set a 401(k) savings rate of at least 6 percent, since your employer will automatically match half of that. The money that you get from your employer is often referred to as "free money," which is absolutely accurate. Make the most out of this full-time job perk.

If this isn't an option for you, don't fret. If you have a cash surplus, consider putting it into a no- load mutual fund, which doesn't include any sales or commission charges.

5. Starting early

Although retirement may be something we associate more closely with people from our parents' generation, it's never too early to start thinking about your own retirement. Whether you plan on spending your golden years traveling abroad, or simply sipping cocktails on the nearest beach, you'll need to finance these plans somehow. Initiating a retirement savings plan today will save you a lot of stress in the future.

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