Please. Listen. Closely.
Just because your skin is vibrant and your boobs aren’t saggy, doesn’t mean you should put retirement planning on the back burner!
Almost 2/3 women have less than $10,000 saved for retirement. If this statistic doesn’t shock you, it should! On average, women live longer than men and we need to have more money saved to support our additional years in retirement. Preparing for retirement is more of a challenge for women because we earn $0.79 for every dollar that men make. Women of color are hit the hardest with Black women and Latina women only earning $0.61 and $0.53, respectively.
I understand why traveling, advancing your career, and building friendships & relationships are important to young women, but investing for retirement should be one of your top priorities in your 20s and 30s.
Chill with the YOLO mentality. First of all, that phrase is old as hell. Secondly, It is great to live in the moment, but the Millennial and Gen Z generations are guilty of doing this a bit too much. As odd as it may sound, it is NEVER too soon to start investing for retirement. You are at a major advantage as a young investor because you have time.
Yep, when it comes to investing, TIME is your best friend.
A retirement account serves as a “personal bank” from which you will withdraw money from during your golden years so that you aren’t forced to work until your 80th birthday.
Are you convinced yet? Please say “yes”!
Now, let’s talk about how to the 3 steps that you need to take in order to live your best life for many decades to come.
First, you need to know the types of retirement accounts available to you.
Step 1: Find the Right Account(s) for You
401(k) Account: Employer-Sponsored retirement plan
Are you employed by a company? If so, there are 2 types of people who benefit most from this type of fund:
- Those employed at companies that offer a 401(k) match incentive
- Those who don’t want to take the time to learn how to properly invest and manage their investments themselves.
A 401(k) account is a great way to earn free money!
Most companies offer an incentive (hint, hint, free money) to encourage employees to enroll in their 401(k) programs, this is referred to as an ‘Employer Match’. Your employer may incentivize you to invest by “matching” your investment. Employers will usually match the amount that you invest in the fund, up to a certain percentage. For example, if you invest 3% of your salary into the 401(k) account, your company will match your contribution and invest that amount into your account.
So, if you earn a salary of $50,000 per year, you can invest 3% of your salary, which is $1,500. Your employer will then add another $1500 to your account, resulting in a total investment of $3,000. Your investment automatically doubled! You just earned free money that is going to grow and compound over time!
You should definitely open a 401(k) account if your company offers a match.There is another benefit to these accounts: the money comes directly out of your paycheck so you can set it and forget it! Also, you are not required to pay taxes on this money until you withdraw it during your retirement years.
Each year, Americans miss out on over $1,300 in employer matching. Over the course of your lifetime, you’re leaving a lot of money on the table. $1,300 per year for 45 years will eventually grow to $1.03 million. Ladies! Do not sleep on your 401(k)!
Now, don’t worry if you don’t have access to a 401(k) plan, there are other options available to you. Even if you’re already enrolled in a 401(k) account, you can still invest in other types of retirement accounts, so keep reading!
If you are self-employed, or just looking for another way to enhance your retirement planning efforts, you can open up an Individual Retirement Account, known as an IRA. These retirement accounts are enticing offer tax incentives for saving for retirement.
The traditional and Roth IRA are good options for people who either don’t qualify for 401(k), or those who already have contributed to their employer-sponsored plan and want to put more money away for their retirement. You can invest up to $6,000 per year in one of the accounts as long as you fall under the income limits.
An IRA is also great for rolling over a 401(k) from your previous employer. If you leave your company and have money in 401(k), but you don’t want to leave it in their plan, you can transfer or roll-over your money and have it deposited into an IRA. This may be something you want to take advantage of if your former employer has a 401(k) plan with high fees.
The amount of money that you contribute to your Traditional IRA is tax-deductible.
Personally, I prioritize my IRA over my other investment accounts (I have another brokerage account and I invest in real estate) because of the tax advantages.
With just about all investment accounts, you’ll have to pay taxes when you withdraw money from the fund. However, money invested into a Roth IRA account is after-tax money. This means that you won’t be taxed when you withdraw your money because you’ve already paid the taxes on it. It is beneficial to pay the tax on your investment in your youth because most of us will be in a higher tax bracket as we get age, since people tend to make more money as they get older.
I highly recommend that you open an IRA account, even if you contribute to your company’s 401(k) program.
Here’s a quick recap:
Other Investment Accounts
Roth 401(k) – If a Roth IRA and 401(k) had a baby, it would be a Roth 401(k). This is an employer-sponsored account which you contribute with after-tax dollars with a limit of $6,000 per year.
SIMPLE IRA – Retirement plan for small businesses with fewer than 100 employees. It is similar to a 401(k) because the contributions have not been taxed yet.
SEP IRA – Retirement account for Solo-preneurs with no employees. Contributions must be less than 25% of your income or less than $56,000, whichever is lower.
At this point, you should have an idea of which type of account is best for you to start with. Now, it’s time to diiiiiive in like Trey Songz.
To enroll in an employer-sponsored 401(k) account, just speak to a representative in your company’s HR department. If you’re ready to open an IRA account or a traditional brokerage account, there are a lot of options for you to start your retirement fund.
Here are a few places to look:
Just as the name implies, it’s a brokerage that interfaces with customers over the internet instead of face to face. People visit their “office” online instead of a physical office location. Some of the largest firms are Vanguard, Fidelity, and Charles Schwab; each of these firms have brick and mortar locations, but can also be utilized entirely online.
These are a few online brokerages that focus on investing funds while charging some of the lowest fees in the industry. These funds are low-cost ways to invest in a range of financial securities from which you have the option to choose, such as stocks, bonds, stock options, index funds, and mutual funds.
This is a class of advisors that provides financial advice or investment management online with moderate to minimal human intervention. They provide digital financial advice based on mathematical rules or algorithms. A few you may have heard of are Betterment, Robinhood, and Ellevest.
To start, you will have to fill out a survey that helps in identifying your risk tolerance and goals. While your money is in an account with the Robo Advisor, it will automatically monitor it and make trades when necessary. For this service, you will see management fees that start at 0.25 percent per year for most Robo Advisors, in addition to the fees charged on the actual investment. If you would ask me, I would say is extremely cheap compared to the benefits of the service.
Open Your Account
Pheeeeww! You can now breathe a sigh of relief because this is the final step. Once you have decided where you would like to open your account, there are just a few things you will need to do. There are details you will need to gather which you are likely going to provide. These includes:
- Social security number or Tax ID
- Contact information (home address, email address, and phone number)
- Your employment status
- Bank account information
If all this information is handy, you can now go ahead to get your account open. It’s usually a quick and smooth process.
For young women out there, it’s best you take the bull by the horns and started your Retirement Fund Process. Imagine you started investing at age 25, there is no reason why you should not be a millionaire by the time you retire.
My goal is to help you be comfortable at any time in your life, that’s why this researched information is provided to you. So, what do you say?
Let’s get started!
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