We all know that saving for retirement is a big important deal. Without a little guidance, it can be this big scary unknown, seemingly complicated beast.

We all have this horrible feeling (that we ignore daily) that we’re not doing enough. None of us feel like we are saving enough or that we know enough to actually have a happy retirement.

 It’s pretty normal to be intimidated by the whole retirement thing, actually. 

It’s important that for your family and your future that you figure just a few small things out, and then be diligent about saving. You don’t need to know everything about every account, all you need is specific details about the retirement option for which you qualify. 

Setting yourself up for a successful retirement can be broken into 5 simple steps. 

1. Figure out what type of account you need
2. Open that account
3. Learn the details & do the math
4. Set up automatic contributions
5. Increase your contributions once a year and watch it grow

I won’t ever tell you specifically where you should open an account or how to invest your money and I don’t sell any insurance products or get commission off of your investments, so this is a completely unbiased, purely educational information piece from me to you. 

I took a deep dive into the world of personal finance out of desperation. Over the past 7 years, I’ve completely altered my family’s future. I share the information I’ve learned, the articles I read, the books I love, and the tools I use with you so that you can do the same and avoid the whole desperation and panic part. 

Ditch the overwhelm and fear around retirement accounts and the confusion about investing with these simple steps. Take one at a time and get your 70-year-old-self in a better place by making positive changes toward an abundant life now.

But How Do I Know What Type Of Retirement Account I Need?

Many people are intimidated by the jargon and complicated sounding abbreviations that come with investing. Everything seems to be some crazy combination of letters and numbers, but what does it all mean? 

Well, you really don’t even need to know what they mean, but incase you’re wondering, most of the types of accounts are named after the section of law that describes them – like 401K or 403b. Roth accounts are actually named after the guy who came up with the idea to set aside after tax money and allow it to accrue interest tax-free. 

Don’t worry about this stuff though.

There are just one or two accounts that most people even qualify for. So, figuring out which account you need is just that simple – figure out which “bucket” you fall into based on employment status and income level, and that’s your answer. 

Pick through the below groups of accounts based on your employment details, therein lies your answer. 

I Have a “Normal” Job

If you have a standard salaried or hourly job and receive a W-2 each year from your employer, then you’re likely to qualify for these: 

401K

This is typically a plan offered by your employer through which you can contribute money right out of your paycheck. There’s usually an employer match (free money!) put into the account once you agree to contribute a certain percentage of your paycheck. 

Both of my prior employers matched half of my contribution, as long as I contributed 6% or more of my paycheck. Most of these plans have great tools built in where you can slowly and automatically increase the percentage you’re contributing every quarter or semiannually. 

Contact your HR department or manager to find out if and when you’re elligible and to get it set up as soon as you are. 

IRA

While there are actually 7 different types of IRAs, the most common ones are just designated by the timing of your contribution – like whether the money is deposited into the retirement before or after taxes are withheld by your employer. 

Roth IRA’s are accounts to which you contribute after taxes. For example, my hubs and I have automatic investments set up into our Roth IRA’s each month from our checking account.

My standard paycheck, which already has taxes withheld by my employer gets deposited into my account each month, and then I can choose which cash out of my checking account I can spend or save or deposit into retirement. 

Traditional IRAs are retirement accounts to which pre-tax money is contributed. These account types do need to be set up through your employer as well since the contribution would be taken prior to taxes being witheld. 

Taxes have to be paid somewhere, so if you are contributing pre-tax money, you’ll pay taxes on the withdraws during your retirement years. If you’re contributing after tax money, like with a Roth account, your withdraws during retirement won’t need to be taxed again.

Of course, there are age limits, income requirements and other caveats, so if you really want to dive into the details about IRAs, here are a few excellent resources:

Nerdwallet

The Balance

Mint

HSA

We typically think of an HSA as an insurance thing. But when used well, it can be a great addition to a retirement plan. You can save pre-taxed dollars into a health savings account and hold them until retirement, when you will likely have more medical issues to pay for. 

HSA money can be used to pay for medical expenses tax-free now and in the future. Most HSA accounts have investment options inside them once you reach a certain level of savings. For example, on my current HSA account, once I save $5000 into it, I can start to choose investment funds and earn more interest. 

This medical bill money will be there for me when I need it most and will save me from using my 401K or IRA savings for medical issues and expenses. Read more in detail about how to use your HSA as a retirement account here.

But What if I’m Self-Employed?

If you are self employed or are a contractor, you likely are taking distributions or may get a 1099 each year.  A Solo 401K might be an option for you if you’re running your own business and have no employees. You can opt for a pre-tax, traditional plan or an after-tax Roth plan and can open one at any online broker. 

If you have a few employees, the SEP IRA which means Simplified Employer Pension, may be your cup of tea. 

SEP IRA’s have a high contribution limit and those contributions are tax deductible. The reporting requirements to the IRA are minimal so they are easier administratively. With a SEP, you’re required to contribute equal percentage of pay to all eligible employees. 

This type of account works well for one-man-shows and businesses with 5 or less employees. For example, a husband and wife team would do well with a SEP IRA.

If you have up to 100 employees, you can qualify for the SIMPLE IRA. SIMPLE stands for Savings Incentive Match Plan for Employees, which means you offer the employees the retirement account as well.

Any small business with fewer than 100 employees can offer this plan to its full time employees and provide a matching program similar to the 401K. Employees can contribute up to  the limit and the you can match a percentage of that. You’re required to make a contribution to all employees within the plan, but that can be as low as 1% to eligible employees.

I’m a Stay At Home Mom, Are there Any Options for Me?

Although limited, there are options for SAHMs. If you have or will spend most of your life without your own income, it’s even more imperative that you get set up for retirement. 

A Spousal IRA is the best and most common option in which to get started. There’s no income requirement for the owner (you, mama) and allows the working partner to contribute money in your name. 

This type of account benefits a single income family by allowing an additional tax-sheltered retirement account beyond what the working spouse qualifies for on their own. Plus, it’s just a great idea to have money in your own name. 

If you did spend some time in the workforce, but are now a stay-at-home mom, you can even consider rolling your old retirement accounts into your Spousal IRA so everything stays simple and is in one place. 

How Do I Choose a Retirement Account?

While I can see how this might be overwhelming or confusing if you tried to remember all the details about every account, don’t do that.

Step back, figure out which one you need based on your employment status, income limit, and contribution limit (you can click on the links above to read more about each option). Once you’ve figured out which bucket you’re in, it’s easy.

There’s no reason to be overwhelmed or fearful of making the wrong decision. There are only a few account types that each of us qualifies for and among those choices, any decision is a good one because the worst choice possible is indecision. 

If you’re anything like me, I can’t help but wondering what else is out there and this panicky sense of FOMO starts creeping up. I’ll tell you the truth though- there are definitely more options out there.

Things like annuities, taxable brokerage accounts, and fancy life insurance programs that earn interest and act as investments do exist. 

You can look into those items down the road when you’re maxing out your contributions to these more basic accounts OR when your income level is so high that you no longer qualify to contribute to these standard retirement plans. 

Basically, what I’m saying is, stick to the basics to just get started. Focus on one of these “normal” retirement plans before you start getting all twisted with anything else. The dreams of the beautiful villa won’t come to you if you’re stuck in Fear Of Missing Out and never actually get started.

How Do I Open A Retirement Account?

Now that you’ve read about these standard types of retirement accounts, step two is to actually open the account.

For this part, especially if you’re self-employed, a financial advisor will get you set up. If you’ve got a typical day job, your manager or the HR department at work will be able to help you. 

If you’ve got the “standard” employment situation, you’re likely eligible for your employer’s plan (401K) and you can open an IRA on your own. This is currently how my husband and I are set up.

We have our IRA’s through Fidelity, into which I deposit money monthly. Plus our employer plan(s), into which money is pulled pre-tax from our paychecks automatically. 

If you’re interested in an account outside your employer & want to consider something for the greater good, some amazing companies do exist in that space. Ellevest and others are geared specifically toward helping women financially and living a better life in a better world. They’ve taken the time to create easy to understand platforms that are created to take the fear and overwhelm out of investing. Here’s a great list of this and other similar companies compiled by The Good Trade.

There’s also a whole slew of what’s called “Robo-advisors”. These are computer-automated investment platforms that assist you in optimizing your portfolio and automatically manage it over time.

They cost less than a human financial advisor, but it’s just that – it’s a computer. Here’s a great list of the best Robo-advisors created by The Balance, another great financial education website. 

None of these accounts are difficult to set up or open. It’s just like opening a standard checking account. You probably need a few documents to prove who you are and then connect this new retirement account to your payroll provider or your checking account. 

Any company that hosts investment products will likely have an online portal and instructions so you can do it yourself. Plus, I’m absolutely sure there’s a representative to help you. If it’s just the employer sponsored plan you’re interested in, the HR department should guide you the whole way. 

One bit of serious advice here: No matter what you open, make sure you fill in all the blanks. One of the most important steps is to set up your beneficiaries.  If you pass away early, but have no beneficiaries set up, your kids and spouse are screwed, and I know you don’t want that.

Forget the Rest and Focus on These Details

Now that you know which account you qualify for and you’ve taken the steps to open the account, I want you to forget all the details about all of the other types of accounts that you read. 

It’s time to focus on your One Thing. 

Right now that single task is to learn the details about the type of account you opened.

This is where you deep-dive into this specific type of account and learn the income threshold limits, maximum yearly contribution amount, tax implications, the date at which you can start withdrawing funds penalty free, and more. 

First you’ll need to figure out what percentage you should be contributing each month or each paycheck. If you’ve opened an employer sponsored plan, like a 401k, you’ll want to contribute enough to get the match, at the very least.

Decide what percentage you’ll contribute each month or each paycheck and begin living your lifestyle according to your new, adjusted take-home income.

If you’re eligible for more than one type of account, get comfortable with contributing that 6% (or whatever your employer’s requirement is) before doing any other investing. I’d make sure I was very comfortable with the details of a single retirement account prior to opening a second one. 

Find out the maximum amount you can contribute to an account per calendar year and think about what that would mean for your lifestyle. Learn these savings guidelines by age. 

Consider implementing a budget so that you can contribute the amount you want and still make sure you have enough cash to cover your bills and lifestyle costs. This is yet another reminder of how much easier life would be if you were debt free.  

Think about other factors that are going to affect your savings amounts and retirement age. Here are a few that cross my mind:

• Advisors used to say that we needed to plan to live off of 70%-90% of our current income value. Now, because of rising housing, medical, and cost of living expenses they are advising we’ll need 130% of our current income in each year of retirement to be comfortable. If that’s not intimidating, I don’t know what is. 
• Women live longer and are typically widowed by the age of 80. Most widows are left broke because the husband’s medical and funeral costs drained their savings. We’ve got to save with that in mind.
• Aside from the whole wage-gap debacle, women typically have less time in the work force. Women are more likely to take time off to have and raise children, and more often than not, take a pay cut when starting back to work.                                                                                      

There are factors working against all of us, man or woman, old or young. WRS News Online outlined the factors working against women pretty well in this article. 

You don’t have to have a plan to combat every one of these issues, but awareness is a good thing. Opening and moving forward with a retirement account is the greatest way to get going. 

Decide on a value that you’d like to contribute each period and work backwards to calculate how you can make that become a reality. This can be an adjustment for someone who’s been used to taking home 100% of their net pay after taxes, but it’s highly necessary. 

Contribution = Action = Rewards

The Universe rewards action, not just ideas. So all the thought and effort it took to learn about the account for which YOU qualify and open it means nothing if you don’t put money in it. 

The best and easiest way to do this is to set up automatic payments. In step 3 above, you looked at your income, your age, contribution limits, your budget and more, and you figured out how much you can and should be contributing. 

Set up automatic contributions to your new, amazing retirement account. It may seem like a hit if you’ve never contributed before, but 6% shouldn’t send you to the poor house.

I know you’d figure it out and make things work if you had to take a 10% cut back from your employer, so I know you can adjust to this. 

On a side note,

Isn’t it funny how we’d just “make it work” if there were cut backs,

Yet we struggle to set aside our own money for a better future?

Something to think about. 

My 401K contribution automatically comes off the top of my paycheck before I ever see a deposit into my checking account. I’m contributing without even noticing every pay period.

If you qualify for one of the employer sponsored plans, I highly suggest doing this (especially if there’s a match! I can’t reiterate this enough – don’t miss out on the “free” money!).

I’ve also automated withdrawals each month from my checking to my Roth IRA account. This is in the after-tax case where it’s up to me to contribute the money after I receive my paycheck, so I’ve automated the contribution so that I never forget or accidentally spend it somewhere else. 

One word of caution here, retirement accounts are not the same as a savings account. Any money you deposit or contribute into these retirement accounts cannot be taken out (you can, but you should not, so we’re not even going to talk about that) until retirement. 

You can’t just withdraw money when you overspend on Christmas and need to cover bills in January. Start saving for retirement with the mindset that the money you contribute is gone. Of course it’s there, it’s just reserved for a future version of you. 

Meanwhile you’ll have to pay attention to the money you are still taking home by following a budget, keeping consumer debt to a minimum, and living within your means. You definitely don’t want to approach retirement with debt and unpaid lifestyle expenses, so don’t get into that habit now. 

I Have an Account with Automatic Contributions Set Up, What Now?

What a great start! You freakin’ did it! I’m so proud of you!

So now what?

Three keys to staying on the right path are: 

1. Keep contributing, month after month and year after year. Consistency and persistence are key. 
2. Increase your contributions a small percentage every period. 
3. Check your account and watch it grow, but not too often. 

You set up automatic investments so that you’re consistently contributing to your future. Don’t mess that up by lowering percentages at bonus time, pausing contributions during tight months, or cancelling the automation because of any certain event. 

Stick to your plan. Stay strong in that you know, now more than ever, how important it is to do this for yourself. If you think about it, contributing to retirement is the greatest form of self care that exists. 

Don’t sabotage your own plan by getting de-railed because you “need” cash for someone’s birthday or Holidays or because you didn’t stick to your budget this month. Keep in mind that laser focus and dedication for just 6 months can put you 5 years ahead in life. 

Increase your contributions slowly and watch your nest egg grow. Start with a low percentage and increase it in a year or so when you get more comfortable.

When we first opened our IRAs, we set up automatic investments of only $50 a month and slowly increased it in time.  

I also set up my 401K account to automatically increase my contribution percentage by 1% every 6 months. I recommend you do the same and increase contributions by a set amount or percentage every 6 months or every year.

Do what you’re comfortable with now and you can always re-visit this later. 

Last, but maybe most importantly, retirement accounts should be boring. This is something you log into twice a year or so. You shouldn’t be tracking stocks, listening to the CNN ticker or any of that hype. This is the slow and steady turtle that wins the race.

You shouldn’t be tracking every increase and panicking when the market goes down. This is a long term account that I hope you’ll have for 30+ years. So the short term S&P 500 news doesn’t matter. Unless you’re logging in to increase contributions, don’t even look at it. 

Sit back and relax with pride now that you are no longer consumed with fear about retirement savings. 

Don’t Waste the Only Resource There’s Not More Of

The time you have spent reading this article, the time you spend researching your options, and the time you have as a member of the workforce is valuable. You can never get that time back. 

So don’t spend all of your life working to wind up with nothing, and don’t spend the time to read this and not do anything toward your future. 

If you already have accounts set up, sure, maybe you skimmed the article. I hope it prompts you to revisit the details about your particular accounts and evaluate your contribution level. 

If you haven’t had an account or haven’t been contributing, it’s time to rectify that immediately. An average assumption is that your money will earn 7% per year (some say 5% is safe and some say they earn up to 12%). 

At that rate and with compounding taken into consideration, your money will double every 7 years. 

I know that’s hard to comprehend, so don’t even worry about doing the math. Just quit wasting time. Get your account and contributions going at a rate that fits your lifestyle and budget so that you can benefit from the long term effects of this investment. 

So what if you only make 5%! What if you do make 12%? What if your money only doubles every 10 years? I’d take that every day compared to flat savings or no savings at all. 

Don’t be the one who lives the majority of your adult life with no retirement accounts because you “never had the time” or “didn’t know where to start” and suddenly you’re 60 and haven’t saved a dime. 

Do you think you are going to have retirement income? No, how would that be if you haven’t saved anything?!?

Or, here’s the other scenario- You have a retirement account, but didn’t contribute to it because you didn’t understand it and were basically afraid of it. You had it all along and never asked for help because you were “too embarrassed”. 

Are you going to have anything to retire on? No, because you didn’t save any cash into it!

Whether you pick an account or not, whether you started from a young age or not, and if you earn high interest or not, the common factor in any of these scenarios is the action of actually saving. 

Budget in order to ensure there’s left over money to save. This is all made easier by not having consumer debt & by making affordable lifestyle choices. Talk openly with your friends and find community in those who are interested in saving as well. 

Every choice we make is a trade off to another – choosing not to save now is choosing to leave an old you unable to work and with no savings. 

And now that you read this whole thing, I know you’re waaaaaay smarter than that!