In the final installment of our Lady Boss + Personal Finance series, we’re going to discuss saving for the future and that big elephant in the room: retirement. The days of pension plans and financial security after retirement are long gone. Today, no one holds your hand and walks you through the process. But the idea of saving for decades in the future may intimidate you to the point of paralysis: where do you start? Fortunately, financial advisor Galia Gichon breaks down the basics so you can start saving well before 70.
Image courtesy of Lifehacker
How Much Do I Need?
While everyone needs to save for retirement, the target number varies for everyone. To pinpoint your target, grab a Post-It note and jot down the following information:
- your age
- the amount of money you’ve saved for retirement to date
- your current annual salary
- the amount of money you are currently saving each month
- your investment style–are you conservative, moderate, or aggressive?
- the year you wish you retire
With this information as a guide, head over to Fidelity’s My Plan Snapshot and input your answers into its handy calculator. This tool provides a visual to show where you are and where you want to be. Did its results make you panic? Don’t worry; play with the sliding toolbars to adjust your age of retirement, your monthly contribution, or your investment style. There’s no “right” answer for how to retire: you can retire later, work part-time later in life, or increase your contribution when you’re financially able. The only way you can reach your retirement goals is if you find out where you are right now.
How Do I Start?
Once you know your retirement goal, it’s time to get saving. Tossing money into a savings account may work for short term goals, but it doesn’t work as hard to achieve long term growth. In order to hit your mark, you need to invest.
Essentially, all these plans function in similar ways. First, you pick your portfolio of investments from this pool of options.
- Mutual funds: (a group of investments)
- Stocks (equity in a company)
- Bonds (loans to the government)
- Exchange Traded Funds (a group of investments traded like one stock)
- Hedge Funds (aggressive risky investments)
Your portfolio may contain all or only some of those choices. Typically, your level of risk decreases as you get closer to retirement because you have more to lose. When you’re just starting out, you have more time to recoup a loss, so you may incorporate more risk.
Who Can Help?
If you are not an investment expert like Galia, don’t fear. There are plenty of people you can turn to for help. Start by asking if your company offers a 401(k) or 403(b) and sign up right away. Many locations offer matching programs, so you’re essentially leaving money on the table by not participating.
If you’re a freelance employee or if you’re interested in the Roth or Traditional IRAs, chat with a representative of your local bank. You can also compare rates with online services like Vanguard, Fidelity, or Schwab. These companies walk you through the steps of choosing your portfolio and field any questions you have along the way.
Extra Credit Reading List
Inspired to learn more about your finances? Galia’s a gem and compiled a list of further resources for you to explore. Take a look and remember: you’re not alone. Everyone gets nervous about money, but only you have the power to control yours. Huge thanks to Galia and Tracy Candido of Lady Boss for another fantastically informative event.
Money Rules: The Simple Path to Lifelong Security by Jean Chatzky
Get a Financial Life: Personal Finance in Your Twenties and Thirties by Beth Kobliner
The Intelligent Investor: The Classic Text on Value Investing by Benjamin Graham