How do I start saving for retirement? Three steps you should consider.

When it comes to saving for retirement, the earlier you start, the better.  We know getting started can be intimidating, though.  So if you're looking for a place to start, consider these three steps.  

Step 1 - Sign up for your company match, if possible.

Your employer may have a plan that matches the percentage of your salary that you choose to invest in your retirement account.  For instance, a common employer match is 3 percent.  When you decide to invest 3% in your work retirement program, your employer will match it with their own 3%.  Employees often don’t realize that they are losing money by not taking this deal.  Really, it is a free 3% increase to your income in order to save for retirement.

Step 2 - Consider a Roth IRA.

Typically, your employer retirement option is a traditional IRA, which means the money is not taxed until you use it in retirement.  It’s a nice tax break now, but if you invest $5,500 at the age of 25, it could grow to be worth $200,000 by age 65 (based on historical averages - we can’t guarantee any future performance).  You will then be taxed on the full $200,000.  Instead, in many cases, millennials should use a Roth IRA, which allows you to pay the taxes now and not be taxed again. 

A Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

Let’s use the same scenario as before.  You invest $5,500 into a Roth IRA, and you pay the taxes on $5,500 right now.  That money sits in an investment and grows to be worth approximately $200,000 by age 65.  You will not have to pay taxes on that amount when you use it in retirement.  Ask yourself, would you rather pay taxes on $5,500 now or $200,000 later?  I think most of us would choose the $5,500, unless you just want to give the government some extra money.  The government does limit the amount we can invest in a Roth IRA each year to $5,500, since it is such a great deal.

If you don't have a Roth IRA option at work, you can start one with a financial advisor.  

Step 3 - Consider different investment options that an independent financial advisor may be able to offer you.

The funds that you are able to invest in a work retirement plan may be limited.   An independent firm is allowed to sell any fund that will benefit the client the most.  As independent financial advisors, we choose options from our full arsenal of available funds that we believe will best serve our clients' needs.

Michael Custer

Michael Custer 

Michael is a LPL Registered Sales Assistant at Custer Financial Advisors.  He graduated from Hope College and specializes in working with millennials and former athletes, as he used to play quarterback in college. To learn more about Michael, visit Custer Financial Advisors or email him.  


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  For advice specific to your situation, please contact us.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

DaveRamsey Smart Vestor