Please ignore if needed, as I know it’s a little personal, but how are you saving for retirement? I just got my first big-person job (at 27) and am feeling behind/overwhelmed. Any advice?
Well first off, congratulations on the job! Also I never mind talking about finance, but thank you for considering that when asking :)
I didn't really get to start saving saving until I was in my thirties, and even now what I do to plan for retirement is not necessarily the best plan for everyone. So I will talk about what I do, but first I'm going to recommend that if you really want to take retirement planning seriously you should speak to a financial advisor, especially if that Big Person Job comes with a significant salary. Your bank is a good place to start, or if the job comes with 401K, speak to the company administering the plan, who can generally provide you with someone who can at least advise you on your 401K. Also disclaimer, I am not a financial advisor and none of this is given in a professional context, these are just my thoughts.
There are a lot of ways you can plan for retirement -- a 401K through work, an IRA independent of that (basically a 401K you buy yourself), personal investments, savings accounts, and other more esoteric financial vehicles. The most common is the 401K, a retirement investment account where you put in a percentage of your paycheck and your company (usually) matches it. The money is then invested in various funds that will, at least this is the hope, earn enough interest to keep up with inflation.
My attitude towards my first 401K was that this was monopoly money, not real or meaningful. I had a fatalistic view of it, having just that year (2008) watched my parents, one of whom is a trained financial planner, lose half the value of their 401K in the economic collapse. But my work mandated a 3% contribution, so I bitterly paid in. Rather than throw the money in there and let Vanguard invest it for me, however, I decided to use this "fake" money to learn about investing. I studied how 401K investing works, learned about bonds and mutual funds and all the rest, and built a portfolio based on what I learned. In 2019 my account topped $100K, pretty decent considering I was paying in the minimum on a paycheck that was small to start with. It's not actually much to retire on yet, but I'm proud of having built it that far.
401K investing doesn't require the amount of research I did, to be fair. If you don't want to do a ton of work, most 401K administrators will have a "target" fund that you just throw your money into with the goal of retiring in the year attached to the fund. I still have a reasonable amount in my "2045" Target fund, which means in theory I should be able to retire in 2045, when I'll be 65. As I get older, the target fund's "risk tolerance" lowers, meaning I'll earn less but be less at risk to lose money should another economic catastrophe occur (frankly pretty likely). This is a perfectly decent way to invest if you don't care about investing or want a simpler life than mine. :D
ANYWAY the standard advice is to put as much as you possibly can into your 401K, because it comes out of your paycheck before taxes, and because your work will often match a certain amount, which is essentially free money (as long as you stay with the company until it "vests" which is basically "if you leave before a certain time period has passed, we get to take this money back"). This is not bad advice but if you're interested in striking out on your own, you should feel okay to take some and redirect it elsewhere, with the awareness that you're sometimes raising your risk of losing it in doing so.
You have a lot of options when it comes to investing outside of a 401K. I don't recommend the stock market because it's a mood ring we base the entire economy on, and it’s a dreadful way to try and make money. Right now is kind of a shitty time to have a savings account, honestly, since nothing is offering very high interest rates. I wouldn't do any long-term locked-in stuff like a CD, where you put $10K in and have to wait 10 years for a 2% return or whatever, because hopefully interest rates on savings will rise before 10 years are out. Right now, especially at the start of your career and given the economic climate, I would stay "liquid" if I were you. And for anything other than savings accounts, which is where I keep my non-401K savings at this point, you're really best off talking to a financial advisor, as I haven't done extensive research. (This will be "next steps" for me once I handle a few other issues.)
What I did was stash my cash in high-yield savings (high yield right now is earning like 0.5%, which is garbage compared to a few years ago but better than nothing). Because I really only just started having disposable income in late 2019, when I changed jobs, I currently have a lot of places I'm keeping money but no one place has a ton in it yet. Still, it may be instructional to talk about. Outside of my checking accounts, which I don't use for saving anything (they're just bills and expenses), I have as investments:
-- A traditional IRA. When I left my old job, I was going to a job where Vanguard wasn't offered as a 401K administrator. I like Vanguard, so instead of moving the money from my old 401K to my new one, I rolled it over into a Traditional IRA with Vanguard. It's the same setup as a 401K, it just now doesn't get any new money coming in (I could be paying into it pre-taxes but I'm not quite there yet).
-- My 401K with my new job. My job matches up to 3% so 3% is what I pay in. I should be paying in more but I'm not gonna because I like having a little spare cash to spend right now. Also some of the money I would be paying into this 401K was used to pay off all my previous debts and is now used to make extra payments on my mortgage, currently my only remaining debt.
-- A savings account with Chase, attached to my checking accounts. This account pays 0.1% interest, so I only keep $1000 in this account. This is an emergency fund if, for example, somehow I end up overdrawn on checking, or I'm in a situation where I need a few hundred dollars immediately. It’s not meant to earn much, it’s there to be a cushion in case of sudden falls.
-- Two savings accounts with a credit union, in my case DCU. One is extremely high-yield (6% interest on the first $1K, 0.25% on anything after that) and one is less high-yield (0.5% but there's no maximum). So I keep $1K in the first account, earning $60 a year, and every month I put $200-$500 from my paycheck into the second account. This is my primary savings at this point and will probably remain so unless I can find something as convenient with a significantly higher interest rate.
-- One savings account with Betterment, an online-only bank. I am actually slowly emptying this one because when I joined, 3 years ago, they were paying 4%, but when the pandemic hit it dropped to 2%, then 0.3%, and then to 0.1%, which to me says they're in trouble. And if money I kept there could be earning more over in DCU's account, why not?
-- In theory my home, which I bought and am paying a mortgage on, is an investment. Given I lived through the bottom falling out of the housing market in 2008, I don't view it as such, especially since while it is appreciating in value it's not keeping up with inflation. Still, I bring it up because technically purchasing a home is a huge investment, and you're likely to be told as such when speaking to a professional. I can't recommend viewing real estate that way, because a) it will make you insane and b) you can't depend on the housing market any more than the stock market. All that said I do recommend buying a home if you're in a position to do so and know you'll be somewhere for a while. Mine was a huge headache to buy and given my luck will undoubtedly be a huge headache to sell, but I don't regret it and I like being able to paint, install new appliances, have pets, etc.
Anyway, I hope this helps! It's one of those areas that require either a lot of research or the services of a professional, but that just means there's a lot of room to play. Good luck!
Read on for our collected wisdom on investing for beginners.
Fundamentals of investing:
What’s the REAL Rate of Return on the Stock Market?
Do NOT Make This Disastrous Beginner Mistake With Your Retirement Funds
The Dark Magic of Financial Horcruxes: How and Why to Diversify Your Assets
Dafuq Is Interest? And How Does It Work for the Forces of Darkness?
Booms, Busts, Bubbles, and Beanie Babies: How Economic Cycles Work
When Money in the Bank Is a Bad Thing: Understanding Inflation and Depreciation
Investing Deathmatch series:
Investing Deathmatch: Managed Funds vs. Index Funds
Investing Deathmatch: Traditional IRA vs. Roth IRA
Investing Deathmatch: Investing in the Stock Market vs. Just… Not
Investing Deathmatch: Stocks vs. Bonds
Investing Deathmatch: Timing the Market vs. Time IN the Market
Investing Deathmatch: Paying off Debt vs. Investing in the Stock Market
Now that we’ve covered the basics, are you ready to invest but don’t know where to begin? We recommend starting small with micro-investing through our partner Acorns. They’ll round up your purchases to the nearest dollar and invest the change in a nicely diversified portfolio of stocks, bonds, and ETFs. Easy as eating pancakes: Start small with Acorns
Bullshit Reasons Not to Buy a House: Refuted
Investing in Cryptocurrency is Bad and Stupid
So I Got Chickens, Part 1: Return on Investment
Twelve Reasons Senior Pets Are an Awesome Investment
How To Save for Retirement When You Make Less Than $30,000 a Year
Understanding the stock market:
Ask the Bitches Pandemic Lightning Round: “Did Congress Really Give $1.5 Trillion to Wall Street?”
Season 3, Episode 2: “I Inherited Money. Should I Pay Off Debt, Invest It, or Blow It All on a Car?”
Money Is Fake and GameStop Is King: What Happened When Reddit and a Meme Stock Tanked Hedge Funds
Season 3, Episode 7: “I’m Finished With the Basic Shit. What Are the Advanced Financial Steps That Only Rich People Know?”
Dafuq Is a Retirement Plan and Why Do You Need One?
Procrastinating on Opening a Retirement Account? Here’s 3 Ways That’ll Fuck You Over
How to Painlessly Run the Gauntlet of a 401k Rollover
Ask the Bitches: “Can I Quit With Unvested Funds? Or Am I Walking Away From Too Much Money?”
Workplace Benefits and Other Cool Side Effects of Employment
You Need to Talk to Your Parents About Their Retirement Plan
Got a retirement plan already? How about three or four? Have you been leaving a trail of abandoned 401(k)s behind you at every employer you quit? Did we just become best friends? Because that was literally my story until recently. Our partner Capitalize will help you quickly and painlessly get through a 401(k) rollover: Roll over your retirement fund with Capitalize
Season 1, Episode 12: “Should I Believe the Fear-Mongering about Another Recession?”
There’s a Storm a’Comin’: What We Know About the Next Recession
Ask the Bitches: How Do I Prepare for a Recession?
A Brief History of the 2008 Crash and Recession: We Were All So Fucked
Ask the Bitches Pandemic Lightning Round: “Is This the Right Time To Start Investing?”
Expected Years in Retirement of Countries and Dependent Territories in Europe 2020/22.
This map was inspired by this comment on another Map Porn post.
There is one key "flaw" with this map, which is that current life expectancy tells us the expected age at death of someone born now, whilst the current retirement age is almost always only applicable to those retiring within the next decade or two, thus born a long time ago. Due to increasing global life expectancy, the statutory retirement age is all but guaranteed to change between one's year of birth and retirement. Unfortunately, there wasn't sufficient historic retirement age data to create the map with the retirement ages from decades past. Still, I hope this map is a useful comparison between countries.
I have tried to use as generalised definition of Retirement/Pension age as possible. It is the age (averaged for men and women where there is a difference) at which a full statutory state pension would kick in if the citizen didn't opt for early drawing of their state pension (which not all states offer).
Many states have already announced plans to increase their statutory pension ages, and some have sliding scales, with a different retirement age dependent on the year you were born. Where either of these cases are true, I have used the retirement age as is the case for someone retiring now, born 65 years ago, as I have to standardise somehow. To try and predict the retirement age in 70+ years time would of course be guess work.
In less developed countries, there is a higher chance of a person continuing to work past state pension age, such as in Turkey, where many people continue to work for several years.
Life expectancy of countries (2020 data): https://data.worldbank.org/indicator/SP.DYN.LE00.IN
Life expectancy of dependent territories (2022 data): https://www.cia.gov/the-world-factbook/
Statutory retirement ages were initially sourced through the sources on the Wikipedia page, Retirement in Europe, although many were out of date so were sourced manually from official government sources (e.g. Isle of Man)
Made using Google Sheets, QGIS and Adobe Photoshop.