If you’re worried about your retirement, you’re not alone: About 55% of Americans feel behind on their retirement savings, according to a survey from Bankrate.
The bottom line: To grow your money, you need to invest it — and the longer it's invested, the more it should grow. The best way to invest is to do it consistently. Most of us won't discover the next Apple or Bitcoin, but sustained, thoughtful retirement planning will go a long way.
The smartest money moves depend on your age, income, employer offerings and much more. In general:
- If you're worried you don’t have enough to invest in your 20s and 30s, think again. Nerdwallet’s Alana Benson says the biggest mistake younger people make is thinking they can’t invest a small amount of money.
- In your 40s and 50s, shine a light on your portfolio. This might feel like the financial equivalent of trying on a bathing suit under fluorescent lighting, but you need a complete view of your financial wellness.
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Here's detailed advice to stay on track to financial freedom.
Investing in Your 20s: Open Accounts and Build Habits
The trick is to invest early on, so you accrue compound interest — that's when you make money on an investment, and then the “profits” earn even more interest, in a moneymaking snowball effect.
- Open a 401(k): Many employers offer plans, and most will match your contributions up to a certain percentage.
- Open an IRA: Individual Retirement Accounts (IRAs) offer great tax benefits. Many experts suggest Roth IRAs for younger people because you'll pay taxes on the money now, instead of years down the road when you may be in a higher tax bracket. Nerdwallet has a deeper look at various IRAs.
- Set achievable goals: Begin investing $50 or $100 a month, and work toward investing about 15% of your pretax income, counting employer contributions.
Investing in Your 30s: You CAN Start Now
If you're in your 30s but haven't started investing yet, now is still a great time. First, make sure you're fully taking advantage of employer matching programs. Evaluate how much you're putting into existing 401(k) and IRA accounts, and consider how to maximize contributions.
- Double down: Open both an IRA and a 401(k) to maximize investments, especially if you’re just starting to seriously save for retirement. If you're in your peak earning years or want to lower your adjusted gross income on tax forms, consider a traditional IRA.
- Build an emergency fund: Consider a medium-term goal of saving one year’s salary.
- Plan for kids' futures: Set up college funds, such as 529 plans. All 50 states and D.C. offer at least one option.
Investing in Your 40s: Maximizing Contributions
Ready to roll out a strategy to maximize your retirement account contributions? Here's how to get ahead with employer contributions and tax advantages, Benson says:
- Start with your 401(k): Take full advantage of your employer’s matching policy — if they’ll match a 4% contribution, ensure you’re making a 4% contribution.
- Max out your Roth IRA: The limit for the tax year 2023 is $6,500. Try to invest the maximum, because these accounts grow tax-free, and you will be able to withdraw money tax-free.
- Go back to your 401(k): Once your IRA is maxed out, you can shore up your 401(k) — but there are limits: $22,500 for individual contributions and $66,000 for combined employee and employers contributions in 2023.
In Your 50s: Assess Risk & Catch Up on Contributions
When you log in to your accounts, check how your assets are divided between investments that are less risky (bonds) and riskier (stocks).
Concerned that you haven't invested enough money? Catch-up contributions are a great way to add thousands to your retirement funds if you’re 50 or older by the end of the calendar year, the IRS says.
- Add more to your 401(k): The IRS allows up to $7,500 in catch-up contributions in 2023.
- Beef up your Roth IRA: Catch-up contributions to these accounts can be up to $1,000.
- Don’t fear stock market exposure: Investment management company Vanguard has about 71% of its Target Retirement 2035 Fund in the stock market. Consider your personal risk tolerance and how much time you have to ride out stock market fluctuations.
News4 Consumer Reporter Susan Hogan is #Working4You with ways to achieve financial freedom on News4 Today at 4 a.m., 5 a.m. and 6 a.m.
