Finance Series: Step 1 – Open an IRA

So, you’re well into adulthood and have saved nothing for retirement? Don’t worry; you are not alone. According to the Economic Policy Institute, more than half of Americans have saved $0 for retirement. According to Time magazine, the number is more like 1 in 3 Americans who have saved nothing. Either way, that sounds awfully bleak, doesn’t it?

Do not despair. Believe it or not, there is still time to get started on saving for retirement, regardless of your current age. Can I tell you exactly how much you need in what types of accounts so you can retire at X age? No. That’s what financial planners are for. But I can tell you about my first steps towards saving for retirement and how they helped propel me forward.

The one main and true key to any investment strategy is to internalize this one fact:

The key is to save early and save often.

I know. I just acknowledged that you are no spring chicken. So how, you may be wondering, does this “save early” thing work for you?

Easy. The key isn’t to jump into your TARDIS and start saving from childhood (though that would be great. Also, who wouldn’t want a TARDIS?). The key is to realize that today, right now, you are in the best possible standing when it comes to saving for retirement, more so than any other time yet to come in your life. And if you don’t start saving today, that’s okay, because tomorrow is the next best possible time to start saving for retirement.

See what I did there?

The point is to embrace and accept that the amount of money that you save and where you put it are just the details. The important thing is that you begin. Today, if possible. Even if a little. Because you and I both know you can spare $5 a week. Or $20 a month. Or $5 a month if that’s where you are in life. That’s okay! The amount doesn’t matter. What matters is that you open the account and set it up to automatically have money go into it.

Now, where should you put your precious dollars? I’m so glad you asked.

Get thee to your nearest bank or credit union and open an IRA.

Yep, it’s that simple. No research needed. Sure, there are lots of details to be learned later about different IRAs and investments and yada yada. Do not worry about that today. Money can be moved all around, there are all sorts of options, you are not tying your hands by doing this. Instead, you are doing two things:

  • Creating a habit
  • Putting your money somewhere safer than the stock market but not as low-interest as a traditional savings account – perfect for developing that habit and saving something meaningful without losing your shirt.

Big bank, little bank, credit union – doesn’t matter. Wherever you currently have a savings or checking account has IRAs that it offers to members.

IRA stands for Individual Retirement Account and it’s a type of savings account for money you don’t plan to need for a long, long time. It generally has a higher interest rate than a regular savings account, and has some rules where you can’t easily withdraw your money. That’s a good thing, because it forces you not to spend your money until much later.

There are two kinds of IRA: Traditional and Roth. At this stage of your savings game, it really doesn’t matter which you pick. I started with a traditional because when I started investing, Roths didn’t exist. Yeah, I’m old. These days I have both a traditional and a Roth IRA, plus some other things. It’s good to diversify and have money in different places. But when you are just starting to save for retirement, don’t worry about that. Baby steps, friend. Baby steps.

The difference between the two has to do with whether you pay taxes on the money now or later. That’s really up to you, but you wouldn’t be reading this post if you already knew everything about IRAs. I’ve included a few links below to some good sources for more information, if you’d like to read up, but in all honesty, it doesn’t matter which you pick. The key to is to get started building your new investment habit, and both Traditional and Roth IRAs are a great way to do that.

So, your homework: Go to your financial institution. Tell them you want to open an IRA. Tell them you want to set up automatic deposits into the IRA in the amount of $X every $X (how about $10 per paycheck to start?).

They’ll have you fill out some forms. You’ll sign a bunch of things. Be prepared to show your driver’s license, and name a beneficiary for the account. Then, every month, watch your statement and see your account balance grow. You won’t even miss the money you’re putting in there, I promise. You’ll thank me for this when you’re old. And in coming blog posts, I’ll go into more detail about other things you can do with IRAs and other ways you can invest and earn a bigger return, but one thing at a time, grasshopper. One thing at a time.

To do a bit more reading on Traditional vs Roth IRAs, here are some reputable sources:

https://investor.vanguard.com/ira/roth-vs-traditional-ira

https://www.nerdwallet.com/blog/investing/roth-or-traditional-ira-account/

https://www.fidelity.com/retirement-ira/ira-comparison

Additional sources for this article:

https://www.cnbc.com/2017/06/13/heres-how-many-americans-have-nothing-at-all-saved-for-retirement.html

http://time.com/money/4258451/retirement-savings-survey/

 

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