It’s never too late to start saving for retirement. If you are in your 30s and you have questions about IRAs and 401(k)s, then read this post. You may be pleasantly surprised to learn that retiring by age 65 can still happen for you.
You may be wondering, how much should I save for retirement? I am already in my 30s, and I haven’t saved anything.
The rules of thumb say 10% to 15% of your income, but those numbers can vary depending on several factors.
So let’s say you’re 30, you earn $55,000 a year, you want to retire at 65, and you have zero saved so far. You know that you want to live on at least 85% of your pre-tax income when you retire, which is $46,750 per year.
You will need to save about $600 per month. That assumes you invest in 70% stocks, 25% bonds, and 5% cash, and the markets perform at an average rate.
Saving a portion of your income is not enough to save for retirement. You will also need to invest aggressively. Investment experts suggest placing 40% to 70% in stocks and the remainder in bonds. Consult an investment banker or financial advisor when deciding to invest.
What is a 401(k)?
A 401(k) is a plan that lets you set aside pre-taxed money from your paycheck into a retirement savings account that is sponsored by your employer. Some employers match your contribution up to a certain percent. Your employer manages the plan and they may invest in stocks and bonds on your behalf.
If you are self-employed or your employer does not offer a 401(k), then you can invest your money in an individual retirement account or IRA.
What is an IRA?
An IRA is a retirement savings and investment account with tax benefits. There are several types: traditional IRAs, Roth IRAs, SEP IRAs, spousal IRAs, SIMPLE IRAs and more. Unlike a 401(k), you can open an IRA account on your own.
Two of the most popular types of IRAs — the traditional IRA and the Roth IRA — allow you to save $6,000 per year ($7,000 if you’re 50 or older), even if you’re also contributing to a 401(k) or other workplace savings plan.
If you leave your job, you can (and should) take your 401(k) with you. You will need to roll over that account into a new one. Consider converting that 401(k) to an IRA.
Retirement for Self-Employed
Many millennials now work for themselves, either as freelancers or business owners. If this is you, you definitely have options to save for retirement.
- Simplified Employee Pension (SEP-IRA). Save up to $56,000 a year toward retirement.
- Solo 401(k). Good for the entrepreneur with no employees.
- Simple IRA. Good for large businesses up to 100 employees.
- Defined Benefit Plan. Good for an entrepreneur with no employees and a high income
If you’re into cryptocurrency, then you can also consider a Bitcoin IRA. A Bitcoin IRA is a retirement account that purchases Bitcoins (or other digital currency) and holds those coins until you reach the retirement age of 59 ½.
No matter which way you decide to go, know that it is never too late to save for your retirement. You have options, and you will need to research each one to find out which one is best for you.
Neither Confie nor any of its affiliates provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.