Introduction to Retirement
Get inspired to retire! This simple guide will get you started on your journey.
What is retirement?
- Retirement is the age when you stop working
- We all have different dreams and ideas for retirement
- Retirement requires financial planning
What do you think of when you hear the word “retirement”? For most of us, retirement can seem like it’s many years away. We’re so busy paying our bills that it can be tough to imagine life thirty or forty years from now.
We all have ideas about what we want to do when we don’t have to set our alarm clocks and go to work. Maybe you dream of pursuing a hobby like painting or writing a novel. Maybe you want to tackle adventures like skydiving or world travel. Or maybe you just want to relax and be surrounded by friends and family.
We all imagine our retirement in different ways. But retirement itself is a pretty straightforward concept. For most people, it’s the age when you stop working.
Don’t be afraid to imagine the future
It’s true that retirement is one the biggest financial decisions you’ll make, on par with getting married, buying a house, or having kids.
It’s important to think about where you want to be and what you’d like to do. Goals are key! You’ve got to visualize retirement in order to get excited about it.
And just as everyone’s retirement styles are different, so are the ages when people actually retire. For some people, retirement can be as early as their 40s or 50s. For most other people it’s in their 60s or even 70s.
We can all agree that when we’re older, we want to be independent and have money for the unexpected things that can come up in later life.
How do YOU want to retire?
Now is a good time to start imagining the kind of life you want when you’re no longer working.
When you read this guide, start to think about all the fun and wonderful things you want out of life in your later years–but also think about some of the realities and unknowns.
While there’s no crystal ball to tell us what the future will hold, we can all look to our parents and grandparents to see the challenges we can face.
Those challenges may include not having enough money to live the kind of life you had before retirement. Or simply worrying that you’ll run out of money in your later years.
Retirement savings can help us with medical bills, living expenses, and unexpected surprises, both positive and negative that may meet us along the way.
Just by thinking about your retirement, you’re already making a positive step toward a better future.
What will retirement look like for you?
- Your retirement will be different from your parents’ retirement
- Social Security may not be enough
- Planning ahead is your best bet
It’s a fact: Our retirement will most likely be very different from our parents’ retirement.
Many of our moms and dads had pensions or other investment programs that they contributed to over the course of their careers. For a lot of us, that’s not the reality. Things are very different now, and most of us have to fund our own retirements.
Some things to think about:
- Only 10% of us will have pensions.
- We’re living longer.
- We’ll probably be receiving less money from Social Security than previous generations.
- Our career paths are likely to be more unpredictable.
- There’s uncertainty around what healthcare will look like in the future, but it will be a big expense to plan for.
Not working or working less
Retirement may mean you stop working completely. Or it may mean that you work less. Either way, your income will change and you’ll have to adjust for it.
Retirement doesn’t necessarily mean you have to stop working. In fact, most Americans say they’ll want to have some sort of job after the age of 65. And it’s not because they think they’ll need the money, but because they want to keep active and engaged while earning some extra cash.
Regardless of when you retire, unless you choose to work part-time for extra income, you’ll no longer have a weekly or monthly paycheck. So you’ll need other sources of income to fund your living expenses.
People are living longer and longer. That means retirement can last up to 20 years, or even more. Many of us will be living into our 80s, 90s or even 100s! All that living requires more planning.
You’ll need to make sure you have an adequate amount of money saved up for living expenses, health care, even long-term and nursing home care.
Healthy, wealthy and wise
Even the experts don’t know what healthcare and Social Security will look like in 30 years. But here’s what we do know: It’s best not to depend on the uncertain when it comes to the future.
And while no one can put a price tag on the individual human experience of aging, it’s important to think about how you want to live. If you want to be financially independent and not have to rely on others, a solid retirement plan is essential.
We get older. We face good times and bad. It’s important to be smart and embrace all the things that may come.
How can I save for retirement?
- When it comes to saving for retirement, you have options
- Traditional and Roth IRAs are helpful investment tools
- They’re slightly different but both offer tax benefits
In this chapter, we’re going to dive into the most popular ways that Americans save for retirement.
Meet your friend IRA
An IRA, or individual retirement account or arrangement, is a type of investment account. Your IRA is a portfolio that can contain stocks, bonds, funds, and other investments.
Your IRA is a long-term investment account. That means you hold onto it until you reach retirement age (59 ½). If you sell your investments before then, you’ll potentially pay a penalty.
Saving money for something 20, 30, or even 40 years into the future may sound hard to wrap your head around. We all have bills and expenses that need to be paid today. But saving into your IRA enforces discipline.
By investing in it consistently, your nest egg grows and grows until you’re ready to retire.
IRAs are tax-advantaged accounts. We’ll get into that in the sections below, but in short, you can either fund them with your pre-tax dollars or your post-tax dollars (and not pay taxes on the earnings when you retire.)
Your savings in an IRA can also benefit from compounding, which is essentially earning money on your earnings, or interest on your interest. You won’t get that by socking your money in a regular savings account.
The Traditional IRA
One type of IRA is called a traditional IRA. It’s funded with your pre-tax dollars. The money that you contribute to your traditional IRA can lower your annual tax bill.
There are annual limits to what you can contribute. You can put up to $6,000 away each year. But once you’re age 50 or older, you can contribute up to $7,000 annually.
After age 59 ½, you can take money from the account with no penalties. By age 70 1/2 you’re actually required by the IRS to start taking money out of your account. This is called a required minimum distribution (RMD)An RMD is the amount you must withdraw from your traditional IRA starting at age 70 ½. The amount is determined by an IRS formula that comprises life expectancy and account value..
The Roth IRA
A Roth is also a type of IRA. This money doesn’t come out of your paycheck like a 401k. You fund it with the money you’ve already paid taxes on (your net income). Once you’ve funded the account, your earnings can grow tax-free.
Roth IRAs have yearly contribution limits, meaning you can only put in $6,000. However, if you’re 50 or older, you can contribute up to $7,000.
When you’re age 59 ½, you can access this money without paying a penalty. Unlike a traditional IRA where you are required to begin taking money out of your account by age 70 ½, you can keep adding to your Roth IRA for as long as you like. (There are limits based on income, and tax filing status, which you can read more about below.)
Having access to cash from a retirement account that you don’t have to pay taxes on can come in extremely handy. Most of us will want to maximize income in our retirement years when we’re likely to have scaled back on work or stopped working completely.
The following chart summarizes the differences between the two types of account:
|Traditional IRA||Roth IRA|
|Tax benefits||Funded with pre-tax dollars; taxed after retirement||Funded with money you've already paid taxes on; earnings grow tax free|
|Annual contribution limit||$6,000 ($7,000 if you're 50 or older)||$6,000 ($7,000 if you're 50 or older)|
|Withdraw without penalty||At age 59 1/2||At age 59 1/2|
|Required minimum distribution||By age 70 1/2||Never|
Which one is right for me?
The best IRA for you may depend on your income level.
A traditional IRA may potentially be best if:
- You’re a single taxpayer, OR are married and file separately and you are NOT covered by a workplace retirement plan. You can contribute to an account if you earn any amount during the year, and get a full deduction.
- You’re married and filing taxes jointly with a partner who is covered by a retirement plan at work, and your combined income is $189,000 or less. You’ll also be entitled to a full deduction.
- You earn less than $10,000 annually, and you’re married and filing separately.
A Roth IRA could potentially be best if you:
- Earn less than $193,000 if you are married and filing jointly.
- Earn less than $122,000, if you’re single, head of household, or married filing separately (if you did not live with your spouse at any time during the previous year). You’ll get a reduced deduction in these situations if you earn between $122,000 and $137,000.
- Earn less than $10,000 if you’re married filing separately and you lived with your spouse at any time during the previous year.
401(k) and IRAs
If you have a workplace-sponsored retirement account called a 401(k)A 401(k) is a retirement savings plan sponsored by an employer. It lets employees put money away before taxes are taken out., you may still be able to contribute to an IRA. Although you may not get some of the tax benefits for the IRA.
As a final note, it’s always best to consult with a tax advisor or accountant for any questions you have about IRAs or 401(k)s.
When should I start saving for retirement?
- You’re never too young or too old to start
- You can start saving while you’re paying your monthly bills
- Pay yourself—your future is worth investing in
Am I too young to start thinking about retirement?
You’re never too young to begin investing in the future you want. Your 20s are a great time to begin thinking about retirement. In fact, the younger you are when you start saving, and the more consistently you save, the more you’ll have when you need it.
Time is your best friend when it comes to long-term saving.
If you start putting money toward your retirement account in your 20s (contributing more as you get older and earn more), you could have a lot more money available to you when you need it than if you wait until your 30s.
This is a hypothetical illustration of mathematical principles, is not a prediction or projection of performance of an investment or investment strategy, and assumes weekly contributions at an annual rate of a 5% return (compounded annually) and does not account for fees or taxes. It is for illustrative purposes only and is not indicative of any actual investment. Actual return and principal value may be more or less than the original investment.
Worried that you’re starting too late? The best time to start is now.
You may have to put more money away now to catch up. But don’t be discouraged. It’s a long road to retirement so don’t take yourself out of the race because you had a late start.
Stash’s retirement calculator can help you start figuring out where you need to start to get to where you want to be when you’re ready to retire. The longer you save, the more you’re likely to have.
You’re ready to begin!
Imagine your retirement account is like a love letter to your future self (filled with cash). By investing small amounts of money today and over time, you’re investing in yourself, the most worthy cause of all.
Get Stash Retire today.
How can I save for retirement with Stash?
- You can open a traditional or Roth IRA on Stash
- You can start saving while you’re paying your monthly bills
- Pay yourself first—your future is worth investing in
You’ve made the leap and you’re ready to start investing for your future. Here’s the good news, saving for retirement doesn’t have to be expensive and complicated.
Experts say that Americans should aim to save between 10% and 15% of their current income for retirement. That’s a great goal – but everyone has to start somewhere.
You can open a traditional IRA or a Roth IRA on Stash, starting with just $15. Fund your account with curated Stash investments, tailored to your risk level.
The road ahead
A retirement account is a financial commitment to your future self.
Start with $5. Make your first investment. Set up Auto-Stash. Make it a habit. Add more when you can. Buy and hold. Your future is in your hands.
With Stash Retire, you’ve got the tools to make it happen.
What changes over the past century affect the way you save for your retirement?
All of the above. Many things have changed since our parents saved for their retirement. For starters, we’re living longer. Only 10% of us will have pensions, by some estimates, and most of us will have to fund our own retirements. Finally, we’ll probably be receiving less money from Social Security than previous generations.
If people live longer, on average, how will this affect their retirement?
People will need to save more money to cover more years of living expenses. People are living longer and longer. That means retirement can last up to 20 years, or even more. Many of us will live into our 80s, 90s or even 100s! All that living requires more planning. You’ll need to make sure you have an adequate amount of money saved up for living expenses, health care, even long-term and nursing home care.
A retirement account is different from a regular investing account because...
All of the above. Retirement accounts are similar to investing accounts in that they can hold a mixture of stocks, bonds, and funds. However, they are unique in that they are tax-advantaged, meaning you can fund them with pre-tax or post-tax dollars. While you can flexibly withdraw money from an investing account at any time, if you withdraw from your retirement account before the age of retirement, you’ll pay a penalty. In some cases, employers offer retirement accounts, they may also match the contributions you make to your retirement, which could mean free money for you!
A traditional IRA...
All of the above. A traditional IRA is funded with your pre-tax dollars. The money that you contribute to your traditional IRA can lower your annual tax bill. You can put up to $5,500 away each year (and $6,500 annually after age 50). By age 70 ½ the IRS requires you to start taking money out of your account. This is called a required minimum distribution (RMD).
A Roth IRA
All of the above. The money you use to fund a Roth IRA doesn’t come out of your pre-tax earnings like a 401(k). You fund it with the money you’ve already paid taxes on (your net income). Just like traditional IRAs, Roth IRAs have yearly contribution limits of $5,500 (and $6,500 annually after age 50). Unlike a traditional IRA where you are required to begin taking money out of your account by age 70 ½, you can keep adding to your Roth IRA for as long as you like.
A Roth IRA is a good option for people who...
Any of the above. A Roth IRA is a good option for you if you earn less than $132,000, if you’re single, head of household, or married filing separately (if you did not live with your spouse at any time during the previous year). It is also a good option for you if you earn less than $194,000 if you are married and filing jointly. It can also be useful if you plan to continue adding to your account after age 70 ½; you can keep adding to your Roth IRA for as long as you like.
About how much should you aim to save for your retirement?
10 – 15% of your current income. Experts say that you should ideally save between 10% and 15% of your current income for retirement. However, there is no one-size-fits-all when it comes to retiring; it may look a little different for everyone. Depending on when you start, you should aim to contribute more than $5 per month, but less than half your income.