How to start saving for retirement


The investment information provided on this page is for educational purposes only. NerdWallet, Inc. does not provide advisory or brokerage services, nor does it recommend or advise investors to buy or sell any particular stock, security, or other investment.

Do you have a retirement savings account? If the answer is no, you are one of the millions of Americans who do not. According to a new study from NerdWallet, 60% of Americans do not have a retirement savings account such as an IRA or 401(k).

The numbers are even higher among nonwhite consumers, with 71% of black non-Hispanic Americans and 72% of Hispanic Americans saying they don’t have such an account. By comparison, he is 54% of non-Hispanic American whites without an IRA or 401(k).

The newly passed Secure 2.0 Act will even address this disparity between Blacks and Latinos, and will introduce an employer-sponsored law from 2024 to give all Americans more opportunities to save for retirement. included provisions for automatic enrollment into retirement accounts that

But don’t wait for Secure 2.0 to start saving for retirement. Start by understanding what you want and what opportunities exist around you.

1. Know your retirement needs

Think about your goals when planning your retirement. How much money do you need based on your desired lifestyle? When and where do you want to retire? Think about these questions and our Retirement Calculator can help you decide where and how much to save. Helpful.

It’s common advice to start saving early for retirement, but life is rarely linear. Some have recently felt financially secure enough to take a step back and secure money for retirement to start working, go to school, or start a new career later.

Whatever your situation, it’s never too late. Focus on what you can donate to your retirement account. Anything you can add today can grow over time.

2. Consider the pros and cons of retirement accounts

Investing in a retirement savings account has some benefits, such as a potential 401(k) match from your employer and tax relief, but the main benefit is making more money. The more you keep investing, the bigger your nest egg can be.

However, retirement accounts also have their downsides. The point is, you generally can’t withdraw your money before you’re 59½ years old without being fined or taxed. However, the Secure 2.0 provisions allow emergency withdrawals from 1 January 2024 without fines, but without taxes.

Also, because retirement accounts are investment accounts, losses can occur. When you’re ready to choose your investment, consider how much risk you can afford.

3. Evaluate retirement account options

If your employer offers a 401(k) plan, this is one of the easiest ways to get started. You opt in to the plan and decide how much to deduct from your pre-tax salary to put him in your 401(k). Most employers also match employers and match a certain percentage of contributions (usually he is between 3% and 6%).

Contributing to the full cost of your employer’s match will give you the most free money, but if you can’t, start with what you’d like to keep. $22,500 in 2023 ($30,000 for those over 50), but doesn’t need to reach the top. Do what you think is feasible for you.

If you don’t have a retirement account at your workplace, you can also use an Individual Retirement Account (IRA).

Opening an IRA can also be a solution for the self-employed and those looking for an additional way to save for retirement. An IRA can be opened through a bank, online brokerage or robo-advisor. Some brokers and robo-advisors have low or no account fees and no minimum balance.

There are many different types of IRAs, but the most popular are the Traditional IRA and the Roth IRA. With a traditional IRA, you don’t have to pay taxes on your donations, so you get an upfront tax deduction. You pay taxes later when you withdraw from your account when you retire. With a Roth IRA, you pay taxes before you put money into your account, and future withdrawals are tax-free.

Like 401(k)s, IRAs have annual contribution limits. IRAs have total caps, so the 2023 contribution limit is $6,500 for all IRA accounts. Anyone over the age of 50 can donate $7,500.

4. Decide how to invest

Once you open a retirement account, it’s important to choose how you want to invest that money in your account. Holding a mix of stocks, bonds and cash is a rule of thumb, but the allocation of these assets depends on your risk tolerance and retirement goals.

Your 401(k) plan administrator can choose your investments, or you can choose to do so yourself, but your options may be limited.

An IRA generally gives you more choice in the types of things you can invest in. You can use an online broker to make your own investment choices, but if you don’t want to pick stocks, a robo-advisor can put together a portfolio for you. For you, based on your answers to questions about your investment goals.

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The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.

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