The stock market is volatile, so it’s scary to think about risking your hard-earned savings in an investment. However, you don’t want to run out of money during retirement and you can run this risk if you put all of your savings in the bank. From the financial experts at Retirement Income Strategies, here are some answers to your questions about retirement:
When do I need to start investing?
Ideally, you should start investing right after graduating from college. The longer you save the more compound interest you’ll earn. Setting aside $1,000 a year that earns 7% interest will be nearly $113,000 by the time you’re ready to retire. Start early so you can benefit from compounding.
How much money do I need to invest?
This depends on when you start investing, what you decide to invest in, and when you choose to retire. Financial planners advise investing the maximum possible amount in any tax-advantaged retirement you’re eligible for. If you start investing later in life, you might need to invest additional money into the accounts.
Where should I put my money?
You typically have three options for investment:
- Put the money into a retirement account like a 401(k) or 403(b) plan. These funds will grow tax-free until you withdraw them in retirement. You’ll also escape taxes on the money you put into the plan or the money you withdraw from it.
- Put the money into a tax-advantaged retirement account like an IRA. These offer similar tax breaks to 401(k)s.
- Put your money into a regular investment account without tax advantages.
The first two options are the best deals, though there are limits on how much money you can put into them. If you put all the money you’re allowed into tax-favored plans and want to save more, you need a regular investment account.
What should I invest in?
There are three main types of investments: stocks, bonds and cash. Your retirement accounts should contain a mix of stocks, bonds and possibly cash. Invest in stocks and bonds by buying them individually or through a mutual fund additional resources. Mutual funds are just a collection of stocks, bonds or cash equivalents. Some people also invest in hard assets like real estate or gold.