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Building Wealth: Best Moves if You’re 25 to 34

Building Wealth: Best Moves if You’re 25 to 34

(CNN) – Money Magazine’s 101 Ways to Build Wealth package offers blueprints for the different stages of your life on how to achieve real financial security. In tips #1 through #27, [the blueprint] offers advice specifically for 25- to 34-year olds.

WHAT YOU NEED TO KNOW:
Savings goal at age 30: 0.6 x your income
Biggest cash drain: Student loans and other debt
Biggest challenge: Overcoming fear of investing
Biggest opportunity: Lots of time for your money to compound

Here’s a look at the first three tips:

1. Be courageous. Nearly 40% of Gen Y-ers say they’ll never feel okay investing in stocks, MFS Investment Management reports. Take note: Since 1926, a portfolio mostly in stocks has never lost money in any 20-year period while averaging gains of more than 10.8% a year, vs. 4% for bonds.

Get an age-appropriate mix with the target-date fund in your 401(k) or MONEY 70 picks Vanguard Target Retirement 2050 (VFIFX) or T. Rowe Price Retirement 2050 (TRRMX).

2. Go for a Roth 401(k). The Roth advantage: You save with after-tax dollars, so, unlike a regular 401(k), you won’t pay income taxes on withdrawals. That’s a good deal if you’ll be in a higher tax bracket at retirement, as is the case for many young investors.

Four in 10 large plans now offer a Roth option, Aon Hewitt says. To hedge your bet on future tax rates, split your contributions between a Roth and a pretax 401(k).

3. Don’t cash out. More than half of workers in their twenties who leave a job do not roll their 401(k) into an IRA or their new employer’s plan, says Aon Hewitt. Bad move: On a $10,000 balance, you could be left with just $7,000 after taxes and penalties. If, instead, you keep that money growing at, say, 6% a year, you’ll have an extra $100,000 or so by the time you retire.

Click here for the rest of the tips outlined for 25- to 34-year olds.

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