There are many ways to invest for retirement; the ones you choose will depend on your age, career status, financial situation, retirement lifestyle goals and comfort with investment risk. But wherever you are, the right strategy can pay off in spades. Here’s a list of tips to consider at each age and career stage.
- Early career
- Late career
Early career: Build the nest
When you’re just starting out, you might not think about—let alone think you can afford—saving for retirement. But time is on your side. Any money you set aside early in your career will have many years to grow. In fact, thanks to the power of compound interest, the sooner you start saving for retirement, the less you'll probably have to save to reach your goal. Likewise, the more you invest early on, the better off you'll likely be later.
Maximize your workplace plan
If you have a retirement savings plan (like a 401(k), 403(b) or 457) at work, take full advantage of it. These tax-favored plans let you invest in a menu of stock, bond and other funds, and the money comes directly from your paycheck, so you're less likely to miss it.
With a “traditional” account, you invest pretax dollars and will owe income tax on withdrawals (presumably when you’re retired and in a lower tax bracket). With a “Roth” account, you invest after-tax dollars—but withdrawals are tax-free if you meet certain criteria, which works best if you don't need a current tax break or expect your bracket to be higher down the road.
In 2022 you can contribute up to $20,500 to a workplace plan ($27,000 if you’ll be at least age 50 by Dec. 31). So enroll as soon as you can, and contribute as much as you can. (If your employer offers a match, save at least enough to earn every extra dollar they’ll give you.) And over time, try to save more.
Open an IRA
If you’ve maxed out on your employer’s plan, want more investment choices or simply don’t have a plan at work, consider an individual retirement account (IRA). Like workplace plans, traditional IRAs give you a tax break upfront (contributions are tax deductible). Meanwhile, Roth IRAs work with after-tax dollars but offer tax-free withdrawals when you retire. Depending on your income, in 2022 you can contribute Opens in new window up to $6,000 to IRAs ($7,000 if you’ll be 50+ by year-end).