If you don’t want to live on Social Security in your golden years, which we’ve already discussed, is not going to replace your income when you want to retire, you need another plan.

What do you want your life to look like when you’re in your 60’s, 70’s, and 80’s? Do you want your standard of living to be the same as it is now? Do you want it to be better? Do you imagine yourself engrossed in your hobbies? How about traveling and new experiences?

Have you ever thought about how much money you will need to do any of this? If you’re living on Social Security, you won’t be doing any of it. So what do you need?

Think of setting aside money for retirement as sending money to your future self. All those things you want to do are going to cost money, and if future you is no longer working, where’s it going to come from? You have to give it to yourself.

Employer Sponsored Accounts

If your employer offers a 401(k), an IRA, a 403(b), or whatever, you need to look into it. Most employers offer a match based on a percentage of your salary. This means whatever you put into it, up to a certain amount, they will make a matching contribution.

This is FREE money. Whatever the match is, you need to take it! This means you sign a form that permits the company to take the amount directly from your paycheck and put it into the retirement account. The company will put the same amount in your account as well.

Let’s look at an example. Let’s say your salary is $40,000. The company offer’s a 401(k) with a match of up to 3% of your salary and you decide to contribute that amount. It will look like this.

Annual Salary	Match	Employee Monthly	Company Monthly
$40,000	3% Salary	$100	$100

In this scenario, you are contributing $100 per month to your retirement account, and the company is also contributing $100 for a total of $200 per month. You are literally getting an extra $100 per month from your employer. It’d be crazy not to take it. Maybe your company offers more, or maybe a little less, but if they offer a match at all, take advantage of it.

This doesn’t mean you can’t put more in this account. You can generally choose to contribute whatever percentage you want. The employer is only going to contribute up to the match. But the more you contribute, the more your money will grow. For the year 2024, the total amount you can contribute to a 401(k) is $23,000.

Choices – Accounts

You may also have choices and you need to find out what they are. Some employers offer more than 1 type of account. Maybe you have a choice between a Traditional 401(k) or a Roth 401(k) for example.

Money contributed to a Traditional 401(k) is deducted from your paycheck before taxes, which will lower the amount of taxes you pay now, but you will pay taxes on the money you withdraw later.

Money contributed to a Roth 401(k) is deducted from your check after taxes have been factored in. So you essentially pay taxes on the money now, but you will not pay taxes on the principle balance or the growth income it generates in the future.

Choices like these might be 6 of 1, half a dozen of the other, or they might make a huge difference. If you expect to be in the same tax bracket when you retire, it doesn’t really matter. But if you think you might be in a higher tax bracket in later years, it may be better to go with the Roth option and pay the taxes now instead.

Choices – Risk Tolerance

Most companies will give you at least a handful of choices regarding where you want this money to go within the retirement account. In most cases, you can change your mind about this part later by signing an updated form with your new request, so typically, the choice you make now is not necessarily written in stone.

It’s important that you understand what your options are. Your risk tolerance is going to be key. Risk tolerance is the amount of risk you are willing to assume when making these investments.

Higher risk investments have a possibility of losing more, but also a greater chance of gaining more over time. Lower risk options are less likely to lose a lot of money, but the return will be lower, meaning your investments will make less money.

If you are fairly young, you can probably go with higher risk investments because your money will be in the account longer, and there is more time to recover if the market goes down.

If you are not so young, or you just can’t stand the idea of risking losing money for the chance of higher gains, you might want to consider a lower risk option.

Choices – Investments

In most cases, you will have choices regarding what fund or even mix of funds you want to put your money in. You could choose to put everything in 1 fund, or split it based on percentages of your investments.

Many companies offer target date funds that are based on the year you expect to retire. This can be a good option if you don’t have a lot of experience in how investments work.

A target date fund will take into account your current age, the age you want to retire, and the amount of time between the two. Generally, the risk tolerance is higher in the beginning, giving the fund a better chance to grow, and as it gets closer to the retirement year, the risk tolerance is lowered by automatically adjusting where the money is going to assume less risk.

Or if you prefer another type of fund, or any mix of them, ask to speak with the advisor over the account. Don’t be afraid to ask questions and take the time to research the funds available before you decide.

Summary

• If your employer offers a match, take advantage of it at least up to the match.
• Ask about the account type options you have available.
• Research your fund options.
• Ask questions

There are other ways to save for retirement outside of your work and you can have more than one but take advantage of this one if you have the opportunity.

Keep an eye out for future posts about other retirement account options you can open and contribute to on your own.