How To Save for Retirement

The Goal

Everyone retires at some point, right? The 9-5 grind will end and one day we’ll walk out of work for good with no worries but where to travel and how to kill time in the years to come.

The Problem

Unfortunately, this is far from reality for MOST people. Based on a recent article from CNBC (linked below), only 22% of people are confident that they will have enough money to retire!

“78 percent of Americans say they’re ‘extremely’ or ‘somewhat’ concerned about not having enough money for retirement and another 66 percent believe that they’ll outlive their retirement savings”

Yikes!

If you are like my younger self, you may think that you can contribute the 3-5% of salary that your employer matches into a 401k and be set in 40 years.

That’s a fallacy!

First, you need to know what amount you need to save to retire. Everyone’s amount is different based on spending habits and desired retirement age.

The Nerd Wallet Retirement Calculator is a great resource to find out how much you may need for retirement and if you’re on track to get there!

If you look below, even by contributing 24% of my income into a 401k (includes company match), I will fall sadly short of what I need to retire at my desired age!

The Solution

You need a strategy! There are plenty of tools and investment strategies that anyone can use! Below are the tools that I plan to use to grow my retirement fund and I recommend you do the same!

If contributing money to one or more retirement instruments seems far-fetched at the moment, I recommend you stop here and work to curb your debt and lower your expenses first!

401k:

This is an easy one, it’s that thing that most employers offer these days and sometimes match a percentage of what you put in (aka free money!). Don’t stop at what your employer matches or the 10-15% that’s usually recommended. Contribute as much as you can each year until you reach the $18,500 yearly limit! We won’t get into it now, but this is much better than saving cash or opening an investment account thanks to compounded earnings and tax benefits. Depending on your retirement plan, you’ll use either a Traditional or Roth 401k to optimize your tax payments.

If your employer doesn’t offer a 401k, utilize whatever plan they have available! Chances are it’s pretty good and it’s better than nothing!

IRA:

Similar to a 401k with Roth and Traditional options but you usually have to create one for yourself, no one matches a portion of your contribution and the limit is only $5,500. However, you get many of the same compounded earning and tax benefits as a 401k! Max out an IRA each year and reap the benefits in retirement!

If you stop right here, you’ll be saving >$20k per year and have likely done enough! Like J. Money from Budgets Are $exy says, you’ll be a millionaire at some point!

BUT, if you’re like me and want to retire earlier than 65 and want to live a slightly more expensive lifestyle, keep reading!

HSA:

Wait, isn’t this a health insurance account or something?

Technically, yes.

However, there are no requirements that you have to use HSA dollars to pay for medical expenses and it can actually be utilized just like an IRA account in retirement. Plus, HSA accounts have even more tax benefits! Unfortunately, you can only contribute ~$3,500 per year as an individual.

Max this out and not only will you have a stash of money for medical emergencies, but you’ll also be leveraging one of the most underutilized investment strategies!

Rental Real Estate:

Alright, I know this is a lofty goal. BUT, if you do everything above this and can save enough for a down payment on a rental property, it’s a great way to make passive income! Imagine having $200-$500 being plopped into your bank account each month with little to no work involved! If you can purchase one, two, or even three more over time, you’re going to have a lot of free cash flow for life!

Yes, I know, there can be a lot of work involved in being a landlord but I personally think it’s worth it for the cash flow and equity gains that can be reaped!

Brokerage Account:

Last but not least, if you’ve saved money in all the above instruments, a brokerage account is a great place to invest some extra cash. I prefer S&P index funds but there are TONS of options.

As long as you have a savings account with several months of expenses saved for emergencies, throwing leftover cash in an index fund can be more beneficial than leaving it in a bank over the long run

There you have it! These are the retirement saving instruments that I am using or plan to use going forward!

If some of these terms or instruments don’t make sense, don’t worry!

I will be posting a series of blogs that goes into detail on each of them, so stay tuned!

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