What You Need to Know About Saving for Retirement

Saving for retirement might bring about various feelings: nervousness, confusion, excitement and more. Don’t forget that it’s quite possible (and normal) to have a lot of questions. 

After all, most people don’t learn about saving for retirement (or any type of personal finance topics, for that matter) in school. 

Sadly, only 21 states require high school students to complete a course in personal finance. Five states, including the District of Columbia, do not include personal finance in their standards. Finally, six fewer states conduct economics testing and two fewer have personal finance testing compared to those surveyed in 2018, according to the Survey of the States by the Council for Economic Education.

Luckily, you can find ample resources at your disposal. Many resources offer in-depth and reliable information about saving for retirement: brokerage accounts, books, magazines and more can help you teach yourself. You can also seek professionals, such as a financial advisor, to learn more. 

When to Start Saving for Retirement and Steps to Take

If you have a job in which you make money, start saving for retirement now. That includes 16-year-olds just starting their first job! (It’s a great idea to open up a Roth IRA at this age.) 

The earlier you start, the better off you’ll be. However, even if you’re no longer 23 and starting your first job, you can still get started saving for retirement. You can take advantage of catch-up provisions for many types of retirement accounts, including 401(k)s and IRAs if you’re 50 or older.

That said, let’s take a look at the steps to saving for retirement.  

Step 1: Know how much you need to save for retirement. 

How much do you need to save for retirement? Seems like a really tricky question to answer, kind of like trying to predict the future. However, start by figuring out how much money you make now and how much you’ll need when you retire later. Depending on what you want to do in retirement — travel the world or stay home and learn to knit — it could make the difference between allocating more or less to your retirement bucket. However, keep in mind that you likely won’t feel sad about having $2 million in your account saved for retirement!

Try your best to estimate your expenses in retirement by using a retirement calculator like the retirement calculator at Charles Schwab.

Step 2: Evaluate your risk tolerance. 

Are you a risk-averse individual? Do you like to take chances with your money? Depending on your needs and investment horizon, you may want to choose a specific mix of assets that fit your needs. For example, let’s say you’re 50 years old. You may want to choose a more conservative mix of investments because you’re nearing retirement age. On the other hand, if you’re a 23-year-old fresh out of college, you may want to stick your money in an all-stock based portfolio because you have plenty of time on your side to ride the ups and downs of the market.

Need help evaluating your risk tolerance? Just remember that the more risk you take on, the more likely you’ll have an opportunity to see higher gains. On the flip side, the more conservative you go, the more your investment will look similar to your original investment. 

Take a look at this chart to help you identify your risk profile, keeping in mind that stocks represent a more aggressive approach: 

Conservative 

Moderate

Aggressive

Stocks

30%

65%

90%

Bonds

50%

25%

5%

Cash

20%

10%

5%

Step 3: Choose the right type of plan for you. 

When you have an array of choices in front of you (and you do have so many choices!) it can get confusing as to which type of choice makes sense for you. Weigh a few different retirement plan options. You might even want to choose more than one option. Let’s take a look at the common types of retirement plans.

    • 401(k): A 401(k) is an employer-sponsored retirement plan. You can get a tax break on the amount you contribute to a 401(k) because money taken from your take-home pay lowers your taxable income. This means you’ll pay less income tax when you file your next year’s taxes.
  • Roth IRA: A Roth IRA forms an individual retirement account in which after-tax money goes into a fund. You can enjoy tax-free growth and withdrawals upon retirement. You can also tap into a Roth 401(k), which your employer may offer. It works similarly — you can contribute to a Roth 401(k) to your employer’s plan and experience tax-free growth and withdrawals.
  • Traditional IRA: A traditional IRA allows you to contribute pre-tax money toward a retirement account. You won’t pay taxes on the money in a traditional IRA until you withdraw it in retirement. 
  • 403(b): Public schools, institutions of higher education and other 501(c)(3) organizations offer 403(b) plans. You might also hear them called a tax-sheltered annuity or TSA plan. They work similarly to 401(k)s, in which you can contribute and so can your employers. 
  • SIMPLE IRA: A Savings Incentive Match PLan for Employees (SIMPLE) IRA arrangement allows traditional IRAs set up for employees and employers. Small employers (fewer than 100 people) opt for a SIMPLE IRA. 
  • Solo 401(k): Solopreneurs can’t miss out on all the fun! Self-employed individuals who make income from self-employment can contribute to a Solo 401(k).  

Are there more options available? 

Yes! You just need to determine whether you’re eligible for the type of retirement plan you want to participate in. You can find a great list on the IRS website

Step 4: Contribute to your employer’s retirement plan. 

You don’t have to come up with any reasons beyond this one to contribute to your employer’s retirement plan: Your employer probably offers a match. This means that they’ll match your contribution as long as you kick in a certain amount of money. The most common match that employers offer usually amounts to 50 cents on the dollar up to 6% of your pay.

If you can get free money from your employer, take that option. If your employer doesn’t offer a retirement plan, do some research to help your employer think about offering one. 

Step 5: Don’t touch your retirement savings. 

As you contribute your retirement savings, keep contributing and don’t stop! You want to contribute as much as possible to your retirement plan for as long as you can. Your retirement savings benefits you the most when you rely on compound interest to build your returns as much as possible. 

That said, if you have an emergency, you don’t want to dip into your retirement to fund your new car or other emergency needs. Create a separate emergency fund instead, which will take care of three to six months’ worth of emergency expenses if the worst were to happen, such as the loss of a job.

Step 6: Consider having more than one retirement account.

Who says you can’t have more than a little of a good thing? 

You may want to consider doubling up. For example, you can have a 401(k) and a Roth IRA (as long as you meet the income limit requirements for a Roth IRA). 

This just increases the amount you have in savings! It also creates more income streams for you. In other words, when you give yourself access to both taxable and non-taxable accounts, you give yourself automatic flexibility through various income streams and can take advantage of various tax benefits through each option. 

Step 7: Monitor your accounts or get help.

Finally, make sure you monitor your accounts so you know what’s going on with them. It’s not a good idea to remain hands-off with your investments. If you can, take a peek at your accounts every six months or so so you get a handle on what’s going on with them. 

You can also approach a financial advisor if you need guidance to help you on the path to saving for retirement. Make sure you choose a financial advisor who is a fiduciary, or someone who has your best interests in mind. You can ask family members and friends for great ideas of reputable financial advisors in your area — that’s one of the best ways to find the right advisor for you!

How Much Money Should You Put Toward Retirement?

The short answer: Put as much money as you can toward retirement. If you can put in the maximum allowed for each type of retirement, you’ll maximize your retirement outcomes and give yourself a great chance to meet your goals and objectives for retirement.

Reading as much as you can on UNest‘s blog can give you a great start (reading about all things at UNest can also be really fun!) on the road to saving for retirement. We’ll walk you through the basics of what you need to know about saving for retirement, college savings, insurance and more. 

 

 

Disclosure

College Savings Calculator is a hypothetical tool that demonstrates how monthly contributions, age-based asset rebalancing, and tax savings may impact the long-term value of your account, and do not take into account a portfolio’s underlying investment management fees. Calculations assume the private institution cost inflation is 2.8%, public out of state cost inflation is 3.9%, public in state cost inflation is 2.7%. Portfolio is assumed to have only stocks and bonds. Monthly equity returns are based on the historical data from the 10-year track record of the stock market (SPY). Monthly fixed income returns are based on the historical data from the 10-year track record of the bond market index (AGG). The current college expenses are provided by the collegeboard.org. Actual account performance may differ due to market fluctuations, changes in recurring investments, and asset allocation. The information provided here is for illustrative purposes only and does not represent actual or future performance of any investment option and is not intended to predict or project the investment performance of any security or index.

Ksenia Yudina, CFA, MBA

Founder and CEO

Ksenia is the Founder and CEO of U-Nest, the first mobile app that makes it easy for families to save for college. As an entrepreneur and finance professional, Ksenia has focused on alleviating the impact of student debt on families across the economic spectrum. Previously, Ksenia was a Vice President atCapital Group/American Funds, the largest 529 provider in the U.S. In this role, she played a leadership role in helping parents plan and manage their finances, with a focus on the future well-being of their children. Prior to Capital Group/American Funds, she was founder of a residential real estate company. Ksenia earned her bachelor’s degree in finance from CaliforniaState University Northridge, and an MBA from UCLA’s Anderson School of Management.

Mike Van Kempen

Chief Operating Officer

Mike joined U-Nest in September 2019 as COO. He was previously at Acorns, a financial wellness platform, where he spearheaded the analytics and growth initiatives. Mike successfully expandedAcorns’ paid acquisition strategy, adding over 4.5 million investment accounts. Mike began his career in strategy & analytics at Belly, a Chicago-based loyalty startup in 2012. At Belly, Mike led projects that fueled growth across all aspects of the business, growing the customer base from1,000 to over 11,000 merchants, and accumulating a membership of over 2 million customers.Mike holds a B.B.A. in Finance from Loyola University of Chicago.

Steve Buchanan

Chief Technology Officer

Steve has over 20 years of experience in delivering digital innovations in the financial sector. Steve previously orchestrated product architecture and innovation as a Solutions Architect/ Fintech consultant at Union Bank. Prior to Union Bank, he was Chief Architect and Director of Engineering at Calypso, a Silicon Valley startup, where he architected and built multiple financial solutions. He was also Head of Global Integrations at Globe One in Vietnam where he integrated its Peer-to-Peer lending products into core banking solutions. Steve also built the first ever electronic Equities &Equity Options trading systems for Scottish stock brokers Wood Mackenzie (acquired by CountyNatWest). He is a graduate of Edinburgh University.

Peter Mansfield

Chief Marketing Officer

Peter has built an impressive track record in multiple financial industry segments including payments, credit/prepaid cards and lending. He has played an instrumental role at a succession of financial industry leaders, co-founding companies such as Brand3 (acquired by American Express) and PropertyBridge (acquired by Moneygram), and, as the early stage marketing lead at Marqeta (where he was team member number two), BillFloat and WallabyFinancial (acquired by Bankrate).He has helped fast-growth companies reach an aggregate market value of close to $8 billion. Peter holds a bachelor’s degree in economics from the University of Angila, UK.

Sonya Kidman

Client Relationship Manager

Sonya Kidman is a Customer Success professional with a decade of experience in advocating for consumer through user research and genuine empathy. Sonya specializes in user behavior and regularly attends national and global training sessions in wellness and people analytics tools. Sonya is a true global citizen was born in Russia, grew up in Israel, lived and worked in Canada and NewZealand. That global expertise along with an undergraduate degree in Sociology from Tel AvivUniversity have helped to shape a bullet-prof Sonya's framework to develop a winning customer strategy.

Frank Mastrangelo

Board Member

One part banker and one part technologist, Frank spent his early days with the Annenberg Foundation and PNC Bank. His career path led him to Jefferson Bank, where he led the build-out of its electronic banking platforms, and where he would forge a powerful alliance with The Bancorp co-founder Betsy Z. Cohen. As President and COO of The Bancorp from its inception in 1999 Frank played a critical role in helping the organization become an industry bellwether for branchless financial services and a global leader in payments. For this, he has become a widely respected fintech expert, and thought-leader. Frank was recognized in 2013 by Banking Innovation, a leading industry journal, as an “Innovator to Watch.” and as one of the innovators shaping the future of banking. Frank is a graduate of West Chester University of Pennsylvania.