As someone in my twenties, I know how difficult it can be to start saving for retirement. Between paying medical bills, groceries, and rent in New York, my budget usually involves making trade-offs, whether that means opting for a trip to a cheaper grocery store or not going out to dinner or have a drink with friends.

Of course, I’m not the only one feeling this. The Deloitte Global 2022 Gen Z & Millennial Survey looked at more than 23,000 millennials and Gen Zers internationally and found that nearly half of them were living paycheck to paycheck; the cost of living was also listed as one of their top concerns.

Between high inflation rates — 8.5% in July! — student debt and the rising cost of rent and medical bills, it is no surprise that younger generations feel they are falling behind older generations when it comes to saving for the future. retirement.

There is also data to back this up. A 2021 study by Boston College’s Center for Retirement Research found that 28- to 38-year-olds had accumulated less wealth than previous generations at the same age, largely due to higher student debt.

So what can Gen Zers and Millennials do when they feel like the cards are stacked against them? Select spoke with Certified Financial Planner and Future Rich podcast host Barbara Ginty about the importance of saving for retirement in your 20s, even when many factors may be beyond your control.

First, there are usually two ways you can save money: by reducing your expenses or by finding a way to make more money.

In general, Personal finance advice is best suited for those who have income left over each month after paying for essential expenses such as housing, transportation, food, and medical bills. If the majority of your income goes to these categories, it may be difficult to cut back, although it could also mean finding cheaper accommodation, finding roommates or moving house for a while. Spending less money could also mean cutting back on discretionary spending such as dining out, going to the movies, or using multiple streaming or subscription services.

The other option you have is to find a way to bring in more money. You can try to get another job with a higher salary, start a side hustle, or ask for a raise at your current job, says Ginty – with today’s tight job market, getting a new job with a higher might not be as difficult as before.

In July 2022, those who changed jobs increased their wages by 6.7% compared to the 4.9% increase that those who remained in their current position in the last three months saw, according to the Federal Reserve Bank of Atlanta.

Ginty explains that the number one factor young people have going for them when it comes to saving for retirement is time. When you invest, you earn compound interest — or interest on your interest — so you’ll earn a lot more on your investments over longer periods of time than over shorter ones.

She uses the following example to highlight the benefits of investing early: if you invest $2,000 a year (that’s just $166 a month) from age 19 to 27 and don’t save anything beyond that point , and you assume your investments are earning on average With a 10% rate of return over your lifetime, you’ll end up with $1 million at age 65.

On the other hand, if you wait until age 27 to start saving $2,000 a year, then save for the next 38 years, you’ll end up with $800,000 at age 65. In other words, you will earn $200,000 more by the time you If you started investing at age 19 and should have only been saving for a total of eight years, instead of starting at age 27 and saving save for 38 years in a row, you’re 65.

Millennials and Generation Z are not only at a disadvantage when it comes to saving for retirement due to student debt and the rising cost of living. While previous generations may have received retirement benefits through pensions, beginning in the 1970s, an increasing number of employers began offering 401(k) accounts to their employees instead. Therefore, the burden of saving for retirement falls on individuals. 401(k) accounts allow people to invest their retirement savings in the stock market, so your returns fluctuate with the market.

Many employers offer a 401(k) match, and the company you work for will match a percentage of the income you save. Since 401(k) contributions are usually deducted directly from your paycheck, it’s easier to save this way because you won’t have a chance to spend that money before it hits your account. banking.

If your employer offers a consideration, it is important to maximize it because you will benefit from a 100% rate of return. Once you’ve received the match from your employer, opt to save in a Roth IRA, which is another tax-efficient retirement account.

With a Roth IRA, you’ll pay taxes on your initial contributions, allowing your savings to grow tax-free over time, and you won’t pay taxes when you retire. Note that to be eligible for a Roth IRA, you must earn less than $144,000 as an individual or $204,000 as a married couple.

Select ranked Charles Schwab, Fidelity Investments, and Betterment among the companies with the best Roth IRAs based on factors such as investment options, fees, and ease of use.

To make the process less daunting, start small when saving for retirement and slowly increase your savings rate over time. For example, you might save 5% of your income now, but increase that rate to 10% over the next two years. No matter how much money you start with, any amount is better than none.

The prospect of Saving for retirement can seem daunting when you’ve started your first job or moved into a new apartment, and with rising housing costs and rising student debt, many factors are making it harder for Gen Z. and Generation Y.

However, this is exactly why it is so important for young people to start saving now. With time on your side, young people can take advantage of compound interest by investing in tax-efficient retirement accounts such as 401(k)s and IRAs. Even if you only contribute a few hundred dollars a month now, the difference in income could be thousands or even hundreds of thousands of dollars later in life.

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