We all know, at least in theory, that the younger one starts saving for retirement, the better. Why is it then that this principle so often remains a theory? Starting young when it comes to saving for retirement is an important part of life. Even if you don’t plan to retire, unexpected health issues or life events can arise that require it. So how can we save now for the future? Let’s not complicate it. Let’s keep it as simple as possible. Let’s automate it.
1. Starting off is going to take a little work. You’ll need to think about what your plans are for your future, the amount you’ll need and how much you have to put away each week. When do you plan to retire? How much can you afford to invest from your salary? 10%, 30% or maybe 50%. The more you put away, the longer its able to grow and the higher the return rate on your investment are all important factors. The higher the savings rate the more quickly you can reach financial independence.
2. Next, lets set up your automated savings. Determine how much you’d like to put away per paycheck. Create an account through TD Ameritrade, Vanguard, Fidelity, Robinhood or other investment account and connect it with your bank account. Then, set up a reoccurring auto-transfer from your bank account into your investment account for the amout that you’ve determined. For example, $200 is transferred each pay period into your Vanguard investment account. Think of it as a bill that needs to be paid. Funds can be set up to automatically be transferred from your bank account each pay period to your investment account. Each pay period, after your funds have been transferred, go into your investment account and purchase your chosen stocks, ETFs, etc. Don’t worry about the market, just purchase them.
Also, if you own dividend stocks you’ll receive money 4 times a year from those stocks. We recommend that you set up your investment account to automatically have those dividends reinvested to purchase more of the same stock. Turn this account setting on to repurchase more stocks automatically. This creates the magic investment snowball where your investment compounds, like a snowball rolling down a hill. Check out this cool compound interest calculator.
3. If you receive a matching 401(k) from your employer, invest up to as much as they match. Its free money, why not?! Then, if you’re eligible, put as much money as possible into a Roth IRA. You’ll need to set up your Roth, connect it with your bank and deposit funds from your bank into the Roth account. The Roth is like a container that holds your investment. It’s not an investment in itself. So you’ll need to choose what you want to invest in. We recommend investing in funds that have a broad assortment of other funds such as VTSAX, VNQ or VYM. But please do your own research.
One thing to keep in mind is that you’ll be required to pay taxes on your 401(k) once you start to take it out. And you’ll also be forced to begin to take money out at 70 1/2 years old. But with a Roth, you pay taxes before it goes in and the interest earned is not taxed when it comes out.
4. If you want to squeeze every bit of investment out of your wallet, or you don’t have any wiggle room in your paycheck, then sign up for acorn. It is truly automatic and you don’t even know that it’s happening. When you make a purchase with your credit card for $5.50 you’re left with $0.50 change. If cash, that usually ends up going into the coin jar or the car ashtray. This is where acorn comes in. It takes that $0.50 and purchases a portion of a share of a bunch of stocks. Every little bit of change adds up to become a lot of stocks over time. This is a great way to have super low impact and fully automated investing happen every day. Go to acorn.com to check it out.
Saving for Retirement Automated
