Investing for retirement is relatively easy; however, doing it properly, so you can be financially secure and comfortable for your golden years takes time, effort, and financial literacy. Easy as it may seem, 21 percent of Americans have no money saved for their retirement, while 10 percent have less than $5,000. These numbers are shocking.
There are many paths you can take when it comes to saving and growing money for the day you decide to stop working. No matter how much money you make a year, you can put yourself on a plan that will work and protect you. It takes discipline and knowledge. The most traditional way for employees to save for retirement is through their employer’s 401(k) program. No matter how little you make, it is important that you maximize the contribution limit; especially if your employer matches your contribution. This could make the difference between working in a restaurant or playing golf everyday when you retire.
For those who do not have a job that offers a 401(k), then start an individual retirement account (IRA). The name suggests exactly what it is. It acts similar to a 401(k), but you have to set it up without your employer. You can go online and open a brokerage account with companies like Vanguard, Fidelity, M1 Finance, and many more. There is no excuse not to do this. Simply open an account like you would open an account with Facebook or Twitter. However, you will need to connect your bank account to your brokerage account. Then set it up to automatically deposit a certain amount of money into your brokerage account every month. The key word here is “automatically.” If you try to manually contribute to this account every month, you will miss a few months because some expense comes up. Eventually, you will just stop contributing. Make it automatic so you don’t even know the money is missing from your bank account.
As mentioned above, it is necessary to max out the contribution limits in your 401(k) or IRA, whichever one you have. However, if you do want to be comfortable when you retire, you should do more. For example, invest in a mutual fund or index fund with the same brokerage account you opened for your IRA. The more you contribute, the more money you will have later in life. The earlier you start, the better because your money will compound year after year. If you don’t know about the compounding effect, Google it! For those who are getting started later in life, start now. It is not too late. If you think you are too old and start feeling sorry for yourself, you will not be happy. Understand you have a chance right now to make a great difference in your future life.
There are many other investments you can learn about. However, many individuals do not want to learn about all the multitudes of investment vehicles because 1) they are not interested in learning about them and 2) they are busy with work and family. This is certainly understandable. If this is the case, then passively investing in an index fund could be the best option. It is safe and goes up over time. This would be a better option than blindly investing in something you do not know about. In fact, many inexperienced investors who are always trying to find the next “big thing” lose money. If you do want to make some risky investments, take the time to educate yourself about what you are investing in.
The key to whichever route you take is to automatically invest a certain percentage of your salary every month, and don’t take it out until you are older. Make sure you have extra cash separate to pay for any type of emergency that might come your way (this is known as a rainy day fund). That way you won’t be tempted to dig into your retirement savings along the way.
 Northwest Mutual