How Do I Start Saving for Retirement?
In a Nutshell
Start saving early by calculating how much you’ll need annually in retirement and multiplying by your expected retirement years to set a target. Choose the right account—401(k) with employer match if available, Roth IRA if you expect higher taxes later, or brokerage with target-date ETFs for simplicity and automatic rebalancing. The sooner you begin, the smaller your regular contributions can be thanks to compounding.
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When surveyed, Americans feel they need more than $2 million to retire comfortably. Dividing that amount over a 25-year retirement results in a budget of about $84,000 per year to cover expenses.
A successful retirement does not happen by accident. Saving for retirement requires answering two key questions: what is your timeline (the amount of time until your target retirement date) and what is your target amount (how much money you expect to need once you retire). A simple way to estimate the target amount is to figure out how much money you need each year to cover your expenses, then multiply that by the number of years you expect to be retired.
401(k): These are most often employer-sponsored plans. They offer tax advantages and some even have contribution matching from your employer. The downsides are that investment options can be limited, not all workplaces offer them, and they have contribution limits.
Traditional IRA: Contributions may be tax deductible today, but you'll generally pay taxes when you withdraw the money in retirement.
Roth IRA: You contribute money that's already been taxed, but qualified withdrawals in retirement can be tax-free.
Traditional brokerage account: These offer the most flexibility with no contribution limits and the ability to put money in or take it out whenever you want. The trade-off is these accounts do not enjoy the potential tax advantages that retirement-specific accounts may offer.
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