Nobody’s going to do it for you. You get that now, and you’re ready to start making a serious effort to save for retirement. You just want a solid start and a clear direction on how to proceed. So, here’s the roadmap, straightforward and without an agenda.
1. Start with meeting the 401(k) match
First, contribute to your employer-sponsored 401(k) up to the employer match. You put in a dollar; they match it with their dollar -- bam! You’ve doubled your money. Doesn’t get any sweeter than that.
2. Ramp up an IRA
Now, sign up for a brokerage account and get a Roth individual retirement account. There are certain income restrictions on IRAs (find them here), but if you’re just starting to save for retirement, chances are you’ll qualify. If not, start a traditional IRA.
The difference between the two? With a Roth, you’re putting in money you’ve already paid tax on, so you don’t get a deduction for your contribution when filling your taxes. But you won’t pay taxes when you make withdrawals from a Roth IRA, like you do with a “regular” IRA. Tax-free growth is good, very good.
For folks just starting to put money away for life after work, the Roth is usually a solid choice. But a case could be made either way: Roth or regular. If you want to take a deep dive into the best choice for you, ask a financial adviser to weigh in.
NerdWallet Inside Tip: Here’s one thing that sometimes tips the scales in favor of a Roth IRA, especially if you have a long way to go to retirement. You can withdraw your contributions (not the earnings) from a Roth without paying a penalty, or taxes. That can add a bit of flexibility when you may need it most. Of course, it’s always best to build a giant “no trespassing” wall around your retirement nest egg – but if something bad happens and you really need to access the assets, at least you will be able to do it without incurring a tax penalty.
3. Now max-out the 401(k)
Now that you’ve made your maximum annual contribution to an IRA, head back to the workplace 401(k). You can start kicking-up your contributions until you reach the maximum allowed deferral for the year. In 2014, that’s $17,500 – plus another $5,500 if you are 50 or older.
This is how the road to retirement leads to Easy Street. Maxing out your 401(k) and IRA contributions each year is the smooth, fast-track autobahn less traveled by most investors. But you’ll have the inside lane, especially when we tell you our next tip.
4. Concentrate on your investment mix
If you were to make a list of what investors saving for retirement do wrong, this would be right on top. We saved it for last because, in fact, it’s a very short list. People get caught up in investing fads when the basics matter most.??
To get on track, you only need two strategies.?? First, max out your tax-advantaged savings accounts. We’ve done that in the three preceding steps. And second, invest wisely. It’s easier than the experts would have you believe.
Decide how much risk you are comfortable with, invest accordingly, adjust annually. That’s it. And to think people write big, thick complicated books on this stuff!
For example, if you’re just starting out and decide to put 70 percent of your investments in stocks and 30 percent in bonds, just make sure to reset your mix back to that starting point when they get out of whack. Once a year is usually enough.
It’s only complicated if you want it to be
Saving for retirement is only difficult if you let it get out of hand. Like waiting too long to start. Saving too little. Or, making crazy bets with your investment choices. Those are the things that can add a little, or a lot, of drama to your retirement strategy.
Make these four money moves now and leave the drama to reality TV, not retirement.
– Hal M. Bundrick is a certified financial planner and former financial adviser and senior investment specialist for Wall Street firms. He writes about retirement accounts and personal finance for NerdWallet. Follow him on Twitter: @HalMBundrick