Saving for your future doesn't have to suck. Here's how to decipher the alphabet soup of retirement accounts and motivate yourself to start investing today.

If you’re reading this, good for you. It means that you’re at least willing to admit that you should get around to doing something about saving for retirement.

Ugh. I know.

There’s nothing fun about this. Saving hurts, for one. And retirement is, like, so far away that it’s easy to ignore.

Both true.

But here’s the thing: Retirement is your eventual freedom from wage slavery — the necessity of working for food and shelter. Money you save for retirement is money that buys freedom to do whatever you want.

And even better: The sooner you start saving, the less you have to save to be able to stop working. Even $50 a month will make a difference.

Here are some other things to know about starting to save for retirement.

Retirement Saving Basics

1. Don’t be intimidated. All the numbers and acronyms are confusing, but this stuff isn’t as scary as it seems.

2. Start now (you’re never too young). A 22-year old earning $40,000 who starts putting 10 percent into a 401(k) and gets a three percent employer-matching contribution could have a nest egg of $1.7 million at age 65. And that’s not accounting for any raises or increased contributions over time. If you wait until you turn 32 to begin saving, however, the same contributions will only grow to about $780k. A fun goal is to try to save as much as you earn in a year before you turn 30.

3. Social Security won’t be enough. It’s a fact: Social Security benefit requirements will exceed contributions sometime around 2037. That’s long before most of us twentysomethings will retire. Chances are we’ll still see some kind of government-provided income when we retire, but it won’t be enough to live on. You must take charge of your own retirement!

4. The 401(k) is your friend. A 401(k) is a way to save for retirement through payroll deductions at work. The money you put in now is tax-free; you’ll pay taxes when you take the money out.

5. IRAs too. An IRA is an individual retirement account. You can start one of these anytime at almost any bank or investment company. A “traditional” IRA works like a 401(k) in that you can deduct the money you put in on your federal taxes, but will pay taxes when you take it out. A “Roth” IRA is the opposite; you don’t get a tax break for your contributions, but when you retire, all of your withdrawals are tax-free. (Hint: Roth IRAs are a great idea for young savers).

6. There are limits. The IRS sets the maximum amount you can contribute in tax-advantaged retirement accounts every year. In 2018, savers under 50 can put up to $18,500 in a 401(k). The IRA contribution limit is $5,500 for savers under 50.

7. But you can do both! If you contribute to a 401(k) plan at work, you can still open an IRA. That means in 2017, you can stash away up to $23,500 for retirement. A good strategy? Contribute to your 401(k) up to the maximum your employer matches, then max out a Roth IRA. If you have more to save, make more 401(k) contributions. And, if you have freelance or self-employment income, you may be able to save even more pre-tax money.

8. 401(k) contributions reduce your taxes! 401(k) contributions reduce your taxable income. If you’re in the 25 percent tax bracket and put $100 to your 401(k), you’ll save $25 in taxes. Your 401(k) account grows by the entire $100, but your paycheck only decreases $75.

9. 401(k) plans don’t have income limits. Although many tax-advantaged investments (including IRAs) have income limits, 401(k)s do not. That means that you can continue saving no matter how much you earn.

Matching and Vesting

10. Many employers “match” 401(k) contributions. If your employer has a 401(k) match program, they’ll help you save for retirement. The most common match is 50 percent up to a maximum employee contribution of six percent. That means if you save six percent of your annual salary, your employer will match half of it (three percent).

11. Not taking advantage of a match is like giving up “free money”. If somebody told you they’d put $5 into your savings account for every $10 you put in, you’d be stupid not to do it, right? That’s essentially what an employer match does, so if you don’t take advantage of it, you’re basically turning down “free” money!

12. Maximize your match. Many employers calculate their maximum match by calendar year (ask HR to be sure). That means if you haven’t been contributing to your 401(k) yet this year; you can contribute a much bigger amount for all the remaining pay periods to get more employer-matching funds.

13. Most employer-matched contributes are vested. This means that you have to work for your employer for a set number of years before all of that money is yours to keep. For example, if matched contributions are subject to a five-year vesting schedule, you’ll get to keep 20 percent of your employer’s matching contributions for every year you work there. All of the money appears on your 401(k) statement as soon as it’s invested, but if you leave early, the unvested amount will appear as a “forfeiture” when you withdraw or rollover your money. If you’re close to becoming fully-vested and are considering leaving your job, it might be wise to consider sticking it out a few more months.

Rollovers and Withdrawals

14. Don’t cash out! The government created retirement accounts with tax savings to encourage us to save for retirement. That means if we withdraw the money before age 59 1/2, we’ll not only owe federal and state taxes on the amount we take out, but also a ten percent penalty. Ouch! So once the money’s invested, let it grow. Don’t withdraw it!

15. With IRAs, there are exceptions to the 10 percent penalty. There are very specific rules about IRA withdrawals. In most cases, if you withdraw your money before age 59 1/2, you must pay federal taxes and the 10 percent early-withdrawal penalties, but there are some exceptions. Two of note to younger savers: You may be able to withdraw money from an IRA penalty-free for qualifying higher education expenses and up to $10,000 to purchase your first home.

16. 401(k)s are tied to employers. When you leave a job, your 401(k) stays put until you decide what to do with it. The smart thing to do is to either roll it over to your new employer’s 401(k) or rollover to an IRA that you create anywhere you want. Simply ask your former employer’s HR person for the forms to initiate the rollover. You have some time, but don’t wait forever. Your employer or 401(k) may automatically give you cash dispersal if you don’t rollover your old 401(k) in a certain time period. This is especially true if you have a small balance. Unfortunately, you’ll pay taxes and that 10 percent penalty, so don’t let this happen!

Choosing Your Investments

17. Keep it simple. You don’t need to know much about investing to start saving for retirement. In fact, it’s best that you just ignore what the stock market is doing. The important thing is that you make the contributions. Most 401(k) plans offer what are called “target-date” mutual funds based upon the year you predict you’ll retire. These funds automatically adjust their investments over time; they start out aggressive and become more conservative as their target date approaches.

18. You can be aggressive while you’re young. If you won’t retire for 30 or 40 years, you can take big risks with your investments because you won’t need to access your money for a long time and you have plenty of time to take advantage of long-term growth. Allocate your investments in mostly domestic and international stocks.

19. Ask for help. Your employer can put you in touch with a representative from your 401(k) company who will be happy to help you choose investments at no charge. Take advantage of it.

20. Look for no-load mutual funds. If you open an IRA or rollover an old 401(k), you’ll have virtually unlimited investment choices. There are big differences in how much different funds charge, although determining mutual fund fees can be complicated. Look for no-load mutual funds, which will eat less of your returns.

21. Consider ETFs. Exchange-traded funds (ETFs) are a great simple way to invest and can be bought or sold anytime just like a singular stock. I’m a particular fan of index ETFs, which track entire markets with one fund. With ETFs, you can invest in the entire S&P 500, Dow Jones Industrial Average, and even commodity markets with just one investment.

22. Do some research. You don’t have to become a financial junkie, but the more you know about how investments work and which ones are best for you, the smarter decisions you can make. I use a free account with Morningstar to quickly research mutual funds.


23. Just do it! The most important thing is that you save for retirement. Something. Anything. Just start putting away today. Get help if you need it. Learn as you go. Just start saving!

Need 1-on-1 advice? Learn how to find pre-screened financial advisor in your area here.

Read More:

Related Tools

Recommended Investing Partners

  • Recommended M1 Finance gives you the benefits of a robo-advisor with the control of a traditional brokerage. M1 charges no commissions or management fees, and their minimum starting balance is just $100. Visit Site
  • No Minimum Low-fee robo-advisor with no minimum investment. Creates fully-automated portfolios based upon your desired allocation. Visit Site
  • $500 Minimum Wealthfront requires a $500 minimum investment and charges a very competitive fee of 0.25% per year on portfolios over $10,000. Visit Site

About the author

Total Articles: 353
David Weliver is the founder of Money Under 30. He's a cited authority on personal finance and the unique money issues he faced during his first two decades as an adult. He lives in Maine with his wife and two children.

Article comments

We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 30. Comments have not been reviewed or approved by any advertiser, nor are they reviewed, approved, or endorsed by our partners. It is not our partner’s responsibility to ensure all posts or questions are answered.
Leopold says:

To put item 2 in perspective, if this was being “sold” to my 80 year old father when he was 22, he’d be told this:

If a 22 year old earning $2,500 per year saves 10%, blah, blah, blah . . . . they can have $130,000 by the time they are 65! And that $130,000 would seem like a really big number back then.

The struggle and sacrifice to save that money that early in life, only to have inflation make it relatively worthless in the end, is quite sad.

I’m not suggesting that people be spend-thrifts. BUT, you need to have a better plan than just saving money. Saving money alone won’t provide for your retirement years.

Woody says:

I’m in my 40’s, make 60 a year and just now received a position that offers a 401k program. Any suggestions on how I can catch up with a retirement investment?

Dusti says:

haha 26 and at 280k
Gotta love the evil oil feild.

Sarah says:

I am 22 years old, I have been a registered nurse for 2 years and I am currently making over $55,000 a year.

So much depends on the choices that we make we we’re young.

What can you tell me about 401B’s?
advantages/disadvantages to 401Bs?

tommy says:

I’m 21 years old and I’m finishing up my associate’s degree and I make $41,600 a year…If someone with a bachelor’s at 22 doesn’t make that amount that sux lol

Brendon says:

Yeah it ‘sux’, but there’s many +22 year olds with bachelor’s degrees not making that amount. It’s partially the economy’s fault. I graduated in ’09 when it was freaking impossible to find a job anywhere, especially in my field of study. Aside from what your pay is, you have to weigh in the health benefits too. You may make more than me, but I save literally at least thousands each year on health care benefits and am able to get the care I need easily, which is hugely important to living a healthy, long life.

I’m one of those +22 year olds with a bachelor’s degrees who didn’t make $40K in a year after I graduated from college in 2011.

I stayed with the company I worked for since I was an intern for 5 years where I got promoted and made between $10 to $16. Finally, in 2015 I got my breakthrough to become an Analyst. I’m making a lot more than I ever did.

Sure, there are many people who didn’t make the $40K when they graduated from college, but I believe there was a reason why. If I had to do this all over again, I would choose the difficult process of getting where I am today. It’s all about patience, gaining knowledge what you can do better at the job and learning new things, and to continue to look for job opportunities no matter how many times the door closes. Basically, use your time wisely.

Just yesterday, I opened my ROTH IRA. I will be contributing as much as I can while I’m saving on a down payment for future properties to invest in. I do plan to max my ROTH IRA in the future as I can until I’m not allowed to, which means I would have to create a 401K account.

I may behind on the retirement accounts when it comes to money wise, but at least I’m contributing which is what counts and find ways to make more money.

Mario says:

I would recommend to the young people who are interested in being more financially savvy and making more aggressive investments to consider investing in real estate. I personally have had a lot of success in it at a young age and although there are risks involved in any investment the timing is perfect and the value will never drop to 0 like some stocks i have seen in the past few years. obviously work with experienced people and know what you are doing. The returns can be much higher and you can leverage your money much further than most paper investments. It is a great way to build up your cash to invest in other slower moving investments. I strongly recommend it for the person who is willing to invest the time and be patient to learn.

I'm with Huh? says:

I have to agree with Huh? High-paying fields like health care require a graduate degree–few if any 22-yro lds will have that degree. The part of any of the fields mentioned that a 22-yr old will be in are unlikely to be anywhere near the salaries mentioned. And “ambitious”? There’s more to life’s ambition than a particular salary level. Maybe I’m biased–I passed the age of 30 a long time ago, and even with two graduate degrees, have only recently passed that $40K mark. The true compensation is that I love what I do, working in an academic library. If I’d let it be all about making more money, I’d have had to run away screaming years ago from whatever soul-sucking job I’d ended up taking to get there.

David Weliver says:

Okay there was a comment on here for a while made to look like it came from me advocating market timing. That is BAD advice and it certainly did not come from me.

FYI, I do not usually delete comments based on their content unless it is obviously libelous, hateful, or harmful. I deleted this one, however, because it was trying to impersonate an administrator of this site.

@Huh? According to the National Associate of Colleges and Employers (NACE), the average starting salary for new college grads in 2009 is $49,307.

Another site puts it at $46,000.

These averages are skewed by high-paying fields in engineering, technology, and health care, and $40k is certainly more than I made in my first job seven years ago, but today it is a completely plausible salary for an “ambitious” college graduate.

James says:

Starting salary for a teacher, nurse, engineer, any basic entry level job that requires a college degree can be assumed to be around that amount. Perhaps not in this present economy, but normally it is the standard.

Huh? says:

“A 22-year old earning $40,000…”

What planet are you living on?

Robin says:

I’m 23 and make $39K. In a design job. It happens.

Mishka says:

I have a design job at a respectable place, am a couple years older than you and make less. It depends on location and the size of the company. A 22 year old making 40,000 is rare, though not impossible.

John says:

I agree with user name ” Huh?” and i like what he said.

22 years old making $40,000 what planet are you from….LOL

Going over the basics is a sure way to solidify the foundation of success.

As David mentioned, you are not limited to one kind of retirment plan. Start with a Roth IRA, 401k/457, and consider getting a job that offers a pension, or manag an investment property. Never stop contributing to your emergency fund and eventually it will become yet another means of supporting your retirement.

-Dan Malone-

Kay says:

Good advice that some veteran savers should look to as a refresher!