I remember when I graduated from college. I didn’t have a clue on how to start investing for retirement!
I’ve learned a lot since graduation and I’m well on my way to a happy retirement.
It’s kind of sad that the most important parts of your finances aren’t taught in school. We’re so focused on building up students to enter the workforce that we’ve completely forgotten about anything outside of the workplace.
It’s not like money management, buying a house, or paying taxes is all that important.
So today I’m sharing some of the best tips to help you start saving and investing for retirement.
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How to start investing for retirement: Tips for beginners to start saving money
How much money do you need to save each month for retirement?
One of the most common questions people want to know when starting to invest is, “how much money do I need to save each month in order to retire?”
The answer to that question isn’t easy, because it all depends on the lifestyle you want to live in retirement.
You won’t need much money if you plan to retire at the age of 67, sit at home all day, and watch reruns of friends. However, you’ll need to save more money if you want to travel often and spoil your grandkids rotten.
We also don’t know when you’re going to die. Unfortunately, we will all die but will we live to 100 or die six months after retiring?
You don’t want to amass a large fortune and die early, but you also don’t want to save too little and run out of money.
A retirement calculator will help you play around with the factors that are relevant to you, such as age, current savings, estimated contributions, and desired retirement age.
Using the retirement calculator, get an idea of how much money you’ll need to contribute each year. Divide the number by 12 to get your monthly savings goal.
The number should be reasonable. I would like to retire in 5 years, but that’s just unrealistic!
Budget for retirement!
You need a strong budget to meet your retirement goals. Spending your money all Willy-Nilly like isn’t going to cut it if you want a financially happy life.
If you earn $40k a year, you’ll have control of $400,000 over the course of 10 years. Without a plan, you’ll wonder where your money went.
Budgeting is the plan for your money!
From the retirement calculator, you should have an idea of how much you need to save each month to have a comfortable retirement.
You’ll need to create a family friendly budget that helps you meet your retirement savings goal each month.
I’ve created a free course to help families budget and save more money every month. This course will help you get your finances in order so that you can meet your savings goals.
The more you save now, the more money you’ll have later.
Start with your companies retirement plan and company match
The second biggest question most people ask about retirement is, “how do I actually start investing?”
Most companies offer a 401k retirement plan and some even match your contributions. The best place to start your retirement investing is through your companies retirement plan, taking advantage of company matching.
The details on how you actually put money into your companies retirement account will depend on your companies plan. If you aren’t sure, contact your human resource representative and they should be able to help.
Company matching is free money and should help reduce your anxiety about investing.
Let’s say you earn 40k per year and your company matches 50% of your contributions up to 6% of your salary. You could invest 6% of your salary ($2,400) and your company just gives you 50% of your contribution ($1,200).
By simply investing the 6%, you’ve already earned a 50% return on your investment. If the stock market crashed, it would have to crash by more than 50% of your contributions before you were out any money.
The chances of you actually losing money when taking advantage of a company match are slim.
- The EXACT STRATEGY we used to PAY OFF 40% of our mortgage.
- Failing to save money? You might need to ask yourself these questions.
Roth 401k vs. Traditional 401k
You can always open up your own retirement account if your company doesn’t offer one. There are many different options, but there’s a good chance that you’ll only need to know two options, Roth 401k and Traditional 401k.
I’ll be honest, reading about a 401k can be boring. Here’s a video by Wipfli Financial Advisors that does a really good job explaining the difference between a Roth and Traditional 401k.
The biggest difference between a Roth and Traditional account is when you pay taxes. In a Roth, you are contributing money that has already been taxed so your contributions grow tax free.
In a Traditional 401k, the money is taken out on a Pre-Tax basis and taxes are taken out when you withdraw the money in retirement.
Where can you open a retirement account?
There are a ton of places that can help you open a retirement account and start investing quickly. Most of these places have great customer service and will allow you to contact or have a sit down meeting for free.
Take your time and look at each company. Do some research and determine what company can help you the most. Personally, it’s always a bonus if they have a local office so I can walk in and discuss my account face-to-face.
A few companies that can help you set up a retirement account include:
How to continually increase your retirement contributions and not waste money
Life is funny, you earn more money towards retirement when most of your expenses are gone. You earn less money when you have a ton of expenses such as a mortgage, children, student loans, etc.
While it would be nice to invest 20% of your income into a 401k right away, you’ll probably need to work your way up.
My strategy for increasing my retirement contributions has been very effective so far. Every year you earn a pay raise, invest the difference.
If you have an effective budget, you should be able to live comfortably on your salary. When we earn a pay raise, usually the money goes into expanding our lifestyle rather than into savings. Change your mindset to save first and then live off the rest.
So let’s assume you earn 40k per year and can only afford to invest 6% of your income to meet the company match. You’re currently investing $2,400 of your own money and receiving $1,200 in company matches at a 50% match rate.
If you earned a 2% pay increase, you could now invest almost 8% of your income and still go home with the same paycheck you’re used too.
Now you could decide to still increase your lifestyle if you want too. I don’t recommend it, but you could invest 7% of your income. Now you’re saving more money and you can spend more money.
If you’re looking to save more money, consider joining our free course on budgeting and saving money. The course is full of information to help you save money so that you can have more money for what is important to you.
What would you do with more money?