The most common advice anyone will give you when saving for retirement is to save as early and often as you can. The benefits of saving early are tremendous. Compounding gains over 30+ years will make small saving in your 20s much more significant than larger saving in your late 50s. Saving $2,500 a year from age 25 to 30 is equivalent to saving $20,000 per year from age 55 to 60 after the benefits of 25 years of compounded growth.

The same compounding benefits apply to working with a financial planner as early as you can. Financial planning at the beginning of your financial life creates a solid foundation: you’ll get into the habit of managing debt effectively, saving for multiple goals at once, and creating a budget that will balance your lifestyle and financial security.

However, there are a few critical savings mistakes many people make at the beginning of their life.

Tax Deferral vs Post-Tax Accounts

Deciding to save in a 401(k) versus a Roth IRA is a huge decision that people generally make without giving it any thought. It does not make sense to save in a 401(k) if your tax bracket is low in the early years of your working life compared to what it will be in retirement. The small decision in your first couple working years to save in a 401(k) could lead to a much higher tax bill to access your money in retirement. A 401(k) is also highly inaccessible whereas the Roth contribution can be tapped tax-free at any time.

The worst part is that making the wrong decision early on compounds the problem by retirement. For example, let’s say you graduated in May and took a summer vacation before starting work in August. You are eligible to join your company 401(k) but they do not provide any matching incentives for the first year. Your tax bracket for this year is 12% because you only have a half year of income. Typically, you would be in the 22% tax bracket during a full year. In retirement, you estimate you will be at the 22% tax bracket due to your social security being taxable.



Roth IRA




Value after 40 years (Growth @ 7%)



Tax on Distribution



Future Value of Contribution



*Comparable contribution to a $5,000 Roth contribution due to the tax benefits at a 12% tax bracket.

In this scenario, the contribution to the 401(k) would be worth $8,508 less than the Roth contribution. The single decision to put $5,000 into your 401(k) instead of the Roth will cost you more than the actual contribution when you retire. Small tax decisions like these have big impacts when you retire.

Debt Management

Debt management is another area where proper long-term planning can be extremely useful. There’s an important principle to recognize with debt management: there is both good debt and bad debt. Good debt has a low interest rate and is within your means. Bad debt has a high interest rate, like credit cards or personal loans. Always pay off your bad debt as soon as possible. Your good debt, on the other hand, may provide an opportunity to create additional wealth. If your interest rate is lower than the growth you expect your investments to make, then it may make sense to invest the money instead of paying down the debt faster.

For example, let’s consider a 30-year mortgage at a 4.5% interest rate. It is reasonable that investments over a 30-year time frame will earn more than 4.5%. The difference between investment growth and the mortgage interest rate is the additional wealth created.

Now, let’s alter the example and say that you have only 5 years left on a 30-year mortgage with a 4.5% interest rate. We have a substantially lower degree of certainty that investments could outperform the interest rate due to the shorter time horizon. It now makes more sense to pay down the debt instead of investing any additional amount.

You have to look at the interest rate and the time horizon when considering investing versus paying off debt. The shorter the time frame, the less likely your investments can outperform the interest rate.


There are many areas of your financial life that can be impacted by small decisions at the beginning of your career. Reach out to us to discuss what matters to you and how to develop a plan that meets your goals.

Written by Garrett Gould

Garrett Gould is a remote financial planner who specializes in long-term tax management. He is the co-owner of Halyard Financial and advises individuals, families, and small business owners throughout the nation. Garrett is an Enrolled Agent with the IRS who has passed all three of the CFA exams and has been creating financial plans for several years. Garrett is located on the Upper West Side in New York City.