Create an action plan
Now that we've got something to work toward, it's time to figure out how to make it all happen.
The first step is to enroll in — and contribute to — an employer-sponsored retirement plan. If you work at a school or a nonprofit, that's probably a 403(b) plan, and if you're employed by a corporation, that's probably a 401(k) or an IRA.
Take advantage of any workplace plan, especially if they offer to match your contributions. That's free money for your retirement! About 94% of millennials who are offered a workplace retirement plan contribute to it, which is the same rate as older generations. Having a defined plan in place makes it easier to save.
If you don't have an employer-sponsored plan, you still have plenty of options. You can and should open an IRA for yourself. An IRA is an Individual Retirement Plan, designed for anyone to start saving for retirement. Freelancers and small business owners can also open up plans like a SEP IRA or Solo 401(k) to increase their retirement savings.
Those who have a workplace retirement plan can also open up an IRA. This is a good idea, as it allows you to save even more for your retirement each year.
Once you have your 401(k) and IRA set up, there's another account to consider — the HSA, or Health Savings Account, which has become popular as a supplemental retirement account. HSAs are available for individuals enrolled in a high deductible health plan.
Money saved in an HSA can only be spent on health costs, but that's perfect for a retiree. Many people have higher healthcare bills later in life, and having an account specifically for health-related costs can help your budget. Money that you put in an HSA while you're working grows tax-free, and withdrawals are tax-free as long as you use them for health expenses.
HSA accounts have a $3,600 maximum contribution limit for individuals and a $7,200 limit for a family for 2021. Those older than 55 can save an additional $1,000 a year. Perform a routine plan review. Consult your tax and legal advisors regarding your particular circumstances.
Life has many milestones and bumps, and there may be years that you contribute less to retirement accounts because you buy a house or have a child. However, make sure that you contribute something each year so that you don't miss out on compound interest. A little goes a long way when it has 30 years to grow.
Make a date with yourself to check in on your retirement plan at least once a year. Here are the things you should check on to make sure your money is growing at an appropriate rate.
- How much are you paying in fees each year? If fees are high, consider switching around your investments.
- What is your interest rate? Do some research to see if this is above or below average.
- Where are all your accounts? If you left a job, you may have to transfer your employer retirement plan. Make sure to keep your accounts organized so you know where all your money is.
Saving for retirement takes years, and that's okay. By funding your accounts, contributing regularly, and reviewing your plan each year to stay on track, you can set yourself up for a secure and satisfying retirement.