Retirement investments can seem tricky.
Just the thought of determining how much money you might need after you stop working can be overwhelming, much less figuring out how to come up with those dollars.
But the most important and sometimes toughest step is simply getting started.
The options can seem unlimited — and there are a lot of places and ways to invest for retirement.
Here are some simple steps to get started.
Check with your employer: The easiest way to get started on retirement savings is to find out if your employer offers help.
Many companies offer some sort of retirement benefits whether they be a 401(k), pension or some other option.
Companies often are shifting away from traditional pensions — which can offer a fixed income for life — and moving toward 401(k) options.
With a 401(k) employees can put money from their paychecks into a retirement account before paying taxes on the money. The money accumulates with interest and is taxed during retirement. Employers often match a portion of the money, and there are penalties for pulling the money before retirement.
If nothing else, make sure to take advantage of any free money an employer might put toward your retirement.
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Consider an IRA: While free money from your employer can be great to start saving for a world after work, the money often is not enough to fully fund a decent retirement.
Starting an individual retirement account, commonly known as an IRA, is one of the easier ways to supplement your retirement savings.
There are important distinctions between IRAs. The most common are the traditional IRA and the Roth IRA. A traditional IRA works much like a 401(k) where money is put in before taxes to help people save on the current year’s tax bill.
People are required to start taking money from a traditional IRA at age 70 ½.
A Roth IRA, meanwhile, offers people the chance to pay taxes on the money up front and let the money grow in a retirement vehicle without needing to pay taxes on the growth.
A Roth IRA can be an especially important tool for young workers who likely pay less taxes than they will later in their career as they make more money.
There are penalties for taking money out both Roth and traditional IRAS before turning 59 ½, but there is no set time a person needs to withdraw from a Roth IRA, unlike a traditional IRA.
There are also IRA options for people who are self-employed. Check with a financial consultant to find out some of the finer points of IRA options.
Determine how much you need: Getting retirement vehicles started is the most important part because they often make it easier to automate retirement with regular deductions taken straight from a paycheck or bank account.
Making adjustments to the amount going toward retirement accounts often can be done online in a matter of minutes.
Take a look at your specific needs when figuring out how much to put toward retirement. There are a number of online calculators such as this one provided by the AARP that can help determine how much you need to save depending on how long you want to work and what type of lifestyle you would like after retirement.
Be honest with yourself and consider health costs when making your decisions.
Take a breath: Retirement planning can be a lot to take in at one time.
But once plans are made, they do not need to be thought about every single day, especially if automation helps put the money where it needs to go without a hassle.
Checking retirement accounts periodically and making occasional adjustments is important, but retirement accounts are not day-trading stories, but rather long-term investments where historical returns have been pretty good.
The stock and bond market will make several swings during the course of a 40-year time frame, so it’s important to remember that such investments typically have substantial returns over a longer period of time.
