7 Min Read | Updated: January 29, 2024

Originally Published: August 13, 2020

How to Start a Retirement Fund

Starting a retirement fund is key to your post-work future – and experts say you should begin saving for retirement in your 20s.1 Here’s how to get started.

Retirement Fund

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If you want to live the retirement of your dreams, you’re going to need funds to support you. Cue the retirement plan.

Saving enough money can seem intimidating, especially if you don’t have an employer-sponsored fund.

The good news is that retirement funds with advantages that help you save – like IRAs – are available to almost anyone.

A good friend once told me about the time his grandmother asked him, “What do you want to be when you grow up?” At 10 years old, his response was “retired.” Even if you haven’t been dreaming of retirement since before you entered the workforce, one thing is certain: starting a retirement fund is a step you can take toward a more secure financial future.2


After all, traditional defined-benefit retirement plans like pensions have declined, shifting the responsibility for retirement savings onto the individual.3,4 That means me and you. But you don’t need a pension or an employer-sponsored 401(k) to start a retirement fund – you can do it yourself. In fact, it’s a lot easier than you might expect. You just have to decide when and how to start.

When Should You Start a Retirement Fund?

It’s in your power to shape the life you want for yourself, and setting aside money to pay yourself in the future could help you live out your dreams. If you’re wondering when you should start a retirement fund, experts actually have a clear and unambiguous answer: today.1,5 Really, the sooner the better.


Many financial experts say you should start saving for retirement when you’re in your 20s.1,2 Here’s why:


  • Compound interest.7 The sooner you start, the more time you have to take advantage of something called compound interest. With compound interest, every penny of interest you earn is added onto your principal balance, so it’s included in your next interest calculation. You earn interest on interest, and your money grows faster. For more, read “What is Compound Interest & How is it Calculated?
  • Time to mitigate risks. The more time you have to invest before retirement, the more time you have to benefit from higher-return – but potentially risky – investments, like stocks. Why? You’ll have more time to recover from a potential market downturn or investment gone awry.8

Even if you need to scrimp to save, every bit is better than nothing. As little as $250 in retirement savings is a good start, and setting aside $25 every week can help you make a good habit out of it. Consider setting up an automatic deposit so you don’t even have to think about it. And if your income increases over time, you might find you’ll be able to save more.2,6

Choose a Retirement Plan and Open Your Account

Sure, you can put money into a basic savings account, but it won’t really grow there. Because of their easy accessibility combined with higher interest rates than typical bank savings, high-yield savings accounts are often recommended for shorter-term savings and emergency funds.9,10 But in order to build the necessary funds to sustain yourself after retirement, you’ll need to see some serious returns. Some of the best retirement plans tend to be tax-advantaged investment accounts such as a 401(k) or Individual Retirement Arrangement (IRA) because they have the wealth-building benefit of compounded interest.11,12


  • 401(k).11 A 401(k) is an employer-sponsored retirement account. If your employer offers a 401(k), use it. Especially if they match your contributions. For example, if your employer contributes a dollar for every dollar you save for up to 5% of your pay, try to contribute the full 5% – that employer match is money you wouldn’t otherwise get.
  • IRA.12 If you don’t have access to a 401(k), an IRA is an effective alternative. There are a few types of IRAs, but unless you’re a small business owner or self-employed, the two main types to consider are the traditional IRA and the Roth IRA. The biggest difference between the two types is when you are taxed. With a traditional IRA, contributions are tax deductible when you make them, but you pay taxes when you withdraw funds later. With a Roth IRA, you deposit after-tax money, so it’s not tax deductible. However, you don’t pay tax on withdrawals.  

While your employer must set up a 401(k), you can open up an IRA through a bank, brokerage, investment company, or even online. If you’re not sure which type of plan to pick, a financial advisor may be able to help you choose the best retirement strategy for your needs. Fortunately, retirement accounts are pretty flexible. If you don’t have a job with a 401(k) benefit but expect to in the future, you can start an IRA. In fact, you can have both an IRA and a 401(k). You can even “rollover” an IRA into a 401(k) – and vice versa.13 In plain English, that means converting from one to the other.  


For a deeper dive into different retirement plan options, read “Explaining 6 Key Types of Retirement Plans.”

Start Investing Your Savings

You’ll have to invest your money if you want to start building the kind of returns that can give you the cushion you want in retirement. But investing works differently depending on the type of plan.  


With a 401(k), employers generally limit you to a pre-selected list of investment choices, and you may be automatically enrolled in a plan known as a target-date retirement fund.14 Target-date retirement funds manage your investments to help you maximize return and minimize risk over time, automatically lowering your investment risk as you get closer to your targeted retirement date.  


With an IRA, you get a bit more flexibility. You can invest your money in a wide variety of ways. A general rule of thumb is that it’s OK to make higher-risk investments when you’re younger because it will give you more time to recover if it doesn’t work out.8,15 As you get older, you may want to change your strategy and choose safer options like bonds. If you’d prefer a more hands-off approach, target-date retirement funds are generally available for IRA accounts, too.

Why Should You Start a Retirement Fund?

There are a few reasons why starting a retirement plan is a good idea for everyone.


  • To support yourself. Unless you plan to work for the rest of your life, or you’re independently wealthy, a retirement fund can provide you with the income you need to make ends meet when you're no longer working.
  • To help your money grow. Unlike a basic savings account, a retirement fund lets you allocate your money into investments to help you earn more.
  • Social Security benefits are uncertain. According to the Social Security Administration’s Summary of the 2023 Annual Reports, Social Security reserves are projected to be depleted by 2034.16 It’s uncertain exactly what the future will hold, but taking the personal initiative to start saving won’t hurt.
  • Tax incentives. The government offers incentives to save. For instance, the Saver’s Credit lets eligible filers receive a tax credit of up to 50% of the first $2,000 they contribute to their retirement account, every year.17

The Takeaway

It doesn’t matter whether you’ve been dreaming of retirement since you were 10 or you plan to work as long as you can. If you don’t spend the rest of your life working, you’ll need a steady supply of income to support you – and your retirement goals. And remember: the sooner you start your retirement plan, the more time you’ll have to build up the reserves for a comfortable future.

Megan Doyle

Megan Doyle is a business technology writer and researcher whose work focuses on financial services and cross-cultural diversity and inclusion.


All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

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