Adulting 101 Financial Planning

Retirement 101: 5 Ways Young Professionals Can Get Started

How do you start investing?

Finding a job, networking, making new friends, adjusting to a new setting, and managing expenses such as student loan repayment, rent, and groceries are just some of the priorities for young professionals.

Although all of these priorities are important, saving for retirement can often become forgotten. A study conducted by Northwestern Mutual revealed that nearly a third of Americans have less than $5,000 saved for retirement, while approximately a quarter have no retirement savings at all!

This is alarming especially considering the general rule of thumb is to have 10 times your final salary in savings if you want to retire in your late 60s. For some of us, this may be a daunting task – however, there is hope.

Here are five easy ways to get started:

1) Max Out Your 401K

One great way to save for retirement is by maxing out your 401K contribution to obtain the employer match. For example, if your employer matches 3%, contribute at a minimum 3% to obtain that match; otherwise you may be at risk of losing out on free money. Let’s do the math.

Al Smith would contribute 3% of her annual salary, $50,000, or $1,500 to her employer’s 401K plan. Her employer matches up to 6% or $3,000. Al would be at risk of potentially of losing $1,500 of total match he would have received if he had contributed to the maximum of his employer’s match.

Note, Al could contribute as much as $18,500 per year based on newly released IRS regulation in 2018.

2) Individual Retirement Accounts

Individual Retirement Accounts (IRAs) are an excellent way to get started on investing in your future. With a traditional IRA, you can realize pre-tax savings or allow your investments to grow tax-free with a Roth IRA.

The ability to choose and manage your investments within an IRA provides a significant advantage compared to 401K plans.

Note, you are limited to $5,500 in 2018 for contribution to IRAs.

3) Mutual Funds

Ready to get started on investing? Start with low-cost index funds that would allow your money to grow steadily and diversify the risk associated with investing in individual stocks.

Remember, all investments are subject to risk of loss. Mutual funds allow for diversification of this risk and are suited for passive investors. Index funds, which are benchmarked against a specific index such as S&P 500 are the most popular investment vehicles. Even Warren Buffett, whose net worth is approximately $80 billion, recommends low-cost index funds.

4) Savings Accounts

Not ready for investing, yet? No problem! Start by saving in your savings account. Whether it’s $10 or $100, consistently saving money can provide for a robust foundation for future investment opportunities. Experts recommend saving at least 20% of your income. If you save $30 each week, you could achieve Al Smith’s contribution of $1,500 to his 401K as described in the scenario above.

5) Investment Checkup

If you are already invested, be sure to review your investments at least semi-annually if not more frequently depending on your goals. You might find that some investments in your 401K plans are highly expensive.

The 401K fee disclosure statement will allow you to see how much fees you are being charged on your investments. You would be surprised that some funds may charge as much as 6 percent for every contribution made. Remember, if you are contributing pre-tax, you may be allowed to get a tax deduction on your current year’s return.

Need further clarity on retirement? Well, keep an eye out for the next article in this investing for retirement/portfolio building series.


This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer. 

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