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It’s not always easy to get started on a new project. It’s even more difficult when that project can have long-term effects on your finances—like investing for retirement.
But there’s no reason to put off investing just because you’ve never done it before. Once you’ve completed Baby Step 3, you’ve freed up your most powerful wealth-building tool: your income. Now it’s time to start investing 15% of that income.
Investing now is important to secure a comfortable retirement later. When you retire, do you want to have enough money to travel? Visit grandkids? Update your home or create landscaping that’ll make you the envy of your neighborhood? You’ll need money to make your dreams happen. Saving for retirement is possible, so here’s how to start investing:
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1. Start Investing in a 401(k)
Taking control of your finances is more about behavior than math. So even if you’re only able to invest a small amount, the point is that you make investing a habit—one you won’t want to give up! Consistency over time is the key to building a healthy nest egg.
If your company offers a matching contribution, start with their 401(k) plan. A 401(k) is an employer-sponsored savings plan that allows workers to contribute a portion of their income into a retirement savings account. We suggest contributing up to the employer’s match. For instance, if your company matches contributions up to 4%, save that amount to take advantage of the match.
Contributions to a 401(k) are made through automatic payroll deductions, making saving easy! And 401(k) plans also come with tax benefits. Traditional 401(k) contributions are made with pre-tax dollars, meaning you won’t pay taxes on the money until you withdraw the funds.
However, some companies now offer Roth 401(k) plans. With Roth 401(k) plans, taxes are taken out when you contribute so you won’t owe when you withdraw your funds in retirement. We recommend saving through a Roth 401(k) over a traditional 401(k) if it’s available to you. But if a traditional 401(k) plan is all that’s offered, it’s still a great way to start investing.
2. Contribute to a Roth IRA
Remember, the goal of Baby Step 4 is to invest 15% of your household income. You might not get to the full 15% with a 401(k) alone. That’s why we recommend maxing out a Roth IRA once you’re contributing to a 401(k) up to your employer’s match.
A Roth IRA (Individual Retirement Arrangement) is a retirement savings account that allows you to pay taxes on the money you put into it up front.
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There are two big advantages of these after-tax contributions: First, the money you invest in your Roth IRA grows tax-free. Second, you won’t owe taxes when you withdraw your money in retirement. So, if your account grows by hundreds of thousands of dollars over time, you won’t owe taxes when it’s time to use that money when you retire! Talk about a win!
For 2017, the total amount you can contribute to either a Roth IRA or a traditional IRA can’t be more than $5,500—or $6,500 if you’re age 50 or older. A financial advisor can help you sort out all the details to make sure you understand your options.
3. Find a Financial Consultant Who Can Help You Start Investing
You’ll have questions when you start investing—it’s inevitable. Which are the best funds to choose? How do I manage my 401(k) or set up a Roth IRA? That’s why it’s important to reach out to a financial consultant. An experienced financial consultant can show you how to start investing and empower you to make the best decisions possible for your retirement savings.
The right financial consultant will:
- Educate you on investment choices so you stay in the driver’s seat
- Empower you to make the right choices with the investing options they provide
- Offer a client-first approach
- Commit to a long-term approach to investing
Find Your Financial Consultant Today
If you don’t have a financial consultant, go ahead and reach out to a SmartVestor Pro today! SmartVestor Pros make up a group of professionals who want to super-serve their clients. They are committed to educating and empowering you to create a confident plan for your retirement. Reach out to a SmartVestor Pro today!