Let's Save Some Money - Part 4 of 4
After you get through this post, you will have mastered the art of saving, at least in theory. While it might be the last step in this series of blog posts, saving for retirement needs to be an essential part of each of your savings plans. For most animals the dream of retirement is implanted in our mind the second we are forced to work (do tricks for treats). We dogs dream of the day where our humans will give us steak without requiring us to work for it. As my dad says, you humans start dreaming of retirement after your first week of real work.
Most large companies help their employees save for retirement by offering 401(k)'s. A 401(k) is an account where you can save money from your paycheck before you pay taxes. ALWAYS sign up for a 401(k) if it is offered by your employer. Some employers will match a percentage of their employees (your) contributions. ALWAYS save at least as much as they are willing to match. Much like always picking up a penny on the sidewalk, NEVER leave free money on the table by not contributing enough to your 401(k).
If your employee doesn't offer a 401(k) you should create your own self-directed IRA at a brokerage (E*Trade, TD Ameritrade, etc) and contribute as much as you can (up to the limits). I will go into these limits in a later post.
Automatically increase your investment
Automatically increase your contribution by at least 1% each year. If you contribute 5% of your salary in 2018, you should bump it up to 6% in 2019.
Determine what to invest in
Log into your 401(k) or Self-Directed IRA and select the securities you wish to invest in. I recommend starting with a target date fund.
Select the target date fund that most closely matches the year you will turn 65
When you look at your taxable savings (Part 3), some of those savings are set aside for the near future (house, car, trip, toys for your puppy), but you should also segment a portion of those taxable savings for retirement. These post-tax investments will help compliment your pretax savings and they will combine with social security (if it still exists) to form your retirement portfolio.
One quick note, if you are reading this blog you likely will never be eligible for social security... more on that later