Retirement Accounts 101

 Photo by  Alice Pasqual  on  Unsplash

Photo by Alice Pasqual on Unsplash

Note* I am not legally allowed to give you investment advice pertaining to how or what to invest in. 

I know saving for retirement can seem unnecessary and abstract when you’re fresh out of college. You just earned your degree and landed your first job, and you already need to start thinking about retirement? But the earlier you start saving, the longer your money has a chance to grow. If you’re anything like I was at 22, you’re juggling rent, student loans, car payments all while maintaining a social life. It took everything I had to pry my hard-earned money out of my hands when I knew I wouldn’t see it for another 45 years. 

But that money is sitting comfortably in varied investments, multiplying, while I sit pretty. By putting a little bit of each paycheck aside starting at 22, they money has decades to grow before I’ll ever need it. While I can't give you specific investment advice, I can tell you that the sooner you start saving and investing, the better off you'll be. 

I’m not saying you need to max out your IRA right away or cut your social life just so you can throw a high percentage of your paycheck into a 401k. But I definitely am advising you to see what you can afford to invest and continue to live comfortably. I’m guessing that $100 a month won’t drastically change your lifestyle now, but it’ll mean the world to you when you retire. 

Saving for retirement can seem scary and unmanageable, but it doesn’t have to be. There are several different ways to invest specifically for retirement, you just must decide what’s best for you. Factors such as your age, company, and flexibility will help you decide which retirement account will be the best fit for you.

Out of all the retirement account options, one of two will most likely be best suited for you. Either a 401k or a Roth IRA (or both) will get you started on the right track. 

401k (or 403b)

This retirement plan is offered by your employer. This option will be the easiest and lowest maintenance for you. Some employers require you to be with the company 30, 90, or 365 days before offering this benefit, this should all be drawn out in your offer letter or onboarding package. 

Employers normally match a certain percentage or dollar amount of the money that you put in up to a predetermined dollar amount. This is free money. My suggestion is to get all the free money you can. 

Get a spreadsheet out. Or use an online calculator. Or email me. You can also ask your HR or onboarding team member. Basically, if you raise your hand, people will help you.

All you have to do in this process is determine the amount to invest and choose an investment strategy. Your company will likely give you options and you’ll pick from there. That’s it, not scary at all. I chose to throw my 401k money into a Vanguard 2050 fund, this was the most aggressive option offered by my employer. I can't touch the money until I turn 65 anyway, I might as well give it some room to grow. 

Your company will take the money from your paycheck, pre-tax, and take it from there. You don’t have to do any of the trading, research, or maintenance on the account. The money is taxed as you withdraw it once you retire. 

Roth IRA

This is my personal favorite, just because I like to flirt with trouble. An IRA is an Individual Retirement Account, meaning you DIY. TD Ameritrade is my favorite platform, open an account here. As a single person, you can contribute up to $5,500 annually into a Roth IRA. 

This money has already been taxed once you invest it, so the amount you see is the amount you have. This is beneficial especially if you think you’re in a lower tax bracket now than you will be when you retire (you most likely are). 

This is a little more complicated than a 401k in that you do the investing yourself. However, this gives you a lot more freedom to educate yourself on what your money is doing. 

The benefits of a Roth IRA are that you’re able to withdraw that money back from yourself in certain situations, penalty-free. The only catch is that you're not able to recontribute it once it’s been withdrawn. These include a first-time home purchase, some education expenses, or if you become disabled. There are certain restrictions to this, of course, but it’s nice to have a backup plan. 

I know retirement may seem like an abstract dream, especially at this point in your life. But the sooner you start putting money away and planning for your future, the better off you'll be. Take a second and decide what you can comfortably save and make money moves. Your retired self will more than appreciate it, I promise.