Episode 5: What Retirement Accounts Are — and Why You Should Get Excited About Them
Saving for retirement can feel like something your future self will worry about decades from now. When you’re a teenager or in your early 20s, life feels immediate: school, work, friends, new goals. But here’s the secret nobody tells you early enough—the younger you start saving and investing, the easier it is to become wealthy later.
In this episode, we’ll demystify what retirement accounts actually are, talk through some of today’s most popular options, and highlight why teens should start preparing even before they’re eligible to open their own accounts. By the end, retirement planning won’t just make sense—it’ll feel exciting.
What Exactly Is a Retirement Account?
A retirement account is a special type of investment account designed to help you save money for your future. Unlike regular savings or brokerage accounts, retirement accounts come with tax benefits—essentially financial boosts from the government—to reward you for saving early and consistently.
There are two big advantages that make these accounts so powerful:
- Tax breaks.
Depending on the account, you may get a tax deduction now or enjoy tax-free withdrawals later. Either way, these tax benefits allow your investments to grow much faster than they would in a normal account. - Long-term compounding.
Money invested at a young age has decades to grow. Compounding means your money earns returns, then those returns earn even more returns. Retirement accounts encourage long-term investing, which maximizes this effect.
Think of retirement accounts as growth accelerators—they make every dollar you invest work a little harder for you.
Popular Retirement Account Options for Young Adults
Different retirement accounts exist for different situations, but most young savers will encounter these three first: Roth IRAs, Traditional IRAs, and employer-sponsored plans like 401(k)s.
1. Roth IRA (Individual Retirement Account)
For young people, the Roth IRA is often the superstar.
Why it’s amazing:
- You invest after-tax money (meaning no immediate tax deduction).
- Your money then grows tax-free.
- You withdraw it in retirement completely tax-free.
If you expect to be in a higher tax bracket later—and most young adults will be—this tax-free growth is incredibly valuable.
Who qualifies:
You must have earned income (wages, tips, or self-employment income) to contribute.
Age requirement:
There’s no minimum age. If a teenager earns money legally, they can contribute—often with a parent opening a custodial Roth IRA on their behalf.
2. Traditional IRA
The Traditional IRA is similar to a Roth but offers different tax benefits.
Key features:
- Contributions may be tax-deductible now (reducing your taxable income today).
- The money grows tax-deferred.
- You pay taxes when withdrawing in retirement.
For young adults who expect higher income later, many prefer the Roth. But the Traditional IRA is still a strong option if a tax deduction today is helpful.
Age requirement:
Same as Roth—no minimum age, but you must have earned income.
3. Employer-Sponsored Plans (401(k), 403(b), etc.)
Once you land your first job with benefits, you might be offered a 401(k). These plans automatically take money out of your paycheck and invest it for you.
Why they’re great:
- High contribution limits.
- Easy, automated saving.
- Many employers offer a match—free money—as an incentive to save.
Age requirement:
Employers typically set their own rules, but many allow participation once you’re 21 or once you’ve worked for the company one year—whichever comes later.
What If You’re Too Young to Qualify? Teens, You’re Not Left Out
Many teens haven’t earned income yet or don’t work enough to qualify for a retirement account. But this doesn’t mean you’re stuck waiting.
Here’s what you can do:
1. Start saving anyway.
Set up a high-yield savings account and begin building the habit of putting money aside. Even $10 or $20 per week adds up.
2. Learn how investing works.
Read, watch videos, or use practice-investing apps. Understanding concepts like stocks, index funds, and compound interest puts you far ahead of most adults.
3. Set a goal for when you do have earned income.
Once you start your first real part-time job—at 15, 16, or 17—ask your parent to open a custodial Roth IRA. That early head start is worth thousands (even hundreds of thousands!) later.
Teens who learn to save before they’re eligible end up being the strongest investors.
Why Starting Young Is Such a Superpower: The Math of Compounding
Let’s look at some simple examples. These numbers aren’t random—they represent very achievable habits, like saving a portion of part-time job earnings or summer job paychecks.
Example 1: Save $2,000 per year from age 18–25, then stop
You save for just 8 years, then never contribute another dime.
Assume a modest 7% average annual return.
By age 65, your account could grow to roughly:
➡️ $398,000
That’s almost $400k from only $16k in contributions.
Example 2: Save $3,000 per year from age 22–65
This is 43 years of steady saving.
With the same 7% return, your account might grow to:
➡️ $815,000
That’s over three-quarters of a million dollars—from saving $250 a month.
Example 3: Start at 18 vs. start at 30
Both contribute $3,000 per year.
- Start at 18 → about $1,029,000 at 65
- Start at 30 → about $375,000 at 65
Starting just 12 years earlier leads to nearly three times as much money.
This is the magic of compounding:
Time matters even more than the dollar amount.
How Young Adults Can Get Started Today
✔️ Step 1: Open the right account
- If you’re working and under 18: custodial Roth IRA
- If you’re 18–24 with income: Roth IRA
- If you have employer benefits: contribute to a 401(k), especially up to the company match
✔️ Step 2: Automate small contributions
Even $100 a month—or $25 a week—creates huge long-term gains.
✔️ Step 3: Invest, don’t just save
A retirement account only grows when invested. Most young adults choose:
- Total stock market index funds
- S&P 500 index funds
- Target-date retirement funds
These are simple, diversified, and beginner-friendly.
✔️ Step 4: Increase contributions as your income grows
Your future self will thank you.
Final Thoughts: Your Future Wealth Starts Today
Retirement accounts may seem like something only “older” people care about. But the truth is, young adults have the single greatest advantage in investing: time.
Whether you’re:
- A teen saving for the day you qualify,
- A college student with your first part-time job,
- Or a young professional just navigating benefits—
Every dollar you invest today is worth much more tomorrow.
Start small, stay consistent, and let time and compounding do the heavy lifting. Your future self is already cheering you on.
