What is the best way for me to start saving for retirement now? my age is 21?

Question

I have about 300 dollars to work with each month for now and would like to retire at age 55.

Answer 1

Congratulations Kyle! The fact that you're starting so early is going to cement an awesome future for you!

$300 a month? I hit up dinkytown and threw the calculation into a savings calculator...

http://www.dinkytown.com/java/CompoundSavings.html

By just doing what you're doing and investing (at about a 7% return) you'll end up with about $480,000 by the time your 55! Not too bad at all!

How to get that 7% becomes the issue. Like one of the answerers said, 401k is the way to go if your job offers it. Most 401k's allow you to sock away 10-17% of your salary. What's more is that some companies will match you 50 cents on the dollar! That's free money and will get you a heck of a lot closer to that 7% if not over it.

You're very young and have a lot of time to weather the up's and down's of the market so I would encourage a high amount of risk but that's really a personal decision. The more risk you take the more potential return. The less risk then the the less return. If you went with 100% stock mutual funds then you'd get a high return but you'd have some years where you might (probably will) suffer a loss. If you went for all short term bonds let's say you'd probably get in the 5% range which would lower your total saved to around $314,000. Remember it's a long term game so a few losses are okay.

To retire comfortably the rule of thumb is about 80% of your salary. Remember that you'll be getting a raise for awhile (or at least I hope so!) so I'd take that into account. Maybe assume 3% per year.

No 401k? Then a Roth is the way to go. The difference is that a 401k takes "pre-tax" dollars and a Roth takes "after-tax" dollars. The advantage of a Roth is you pay taxes now but when you retire, the money comes out tax free. 401k's allow you to defer the tax now and pay when you pull the money out.

Confusing? This stuff can be. The best way to get a better feel is to get a couple books.
Here's a few to get you started...

Personal Finance for Dummies by Eric Tyson
This is a classic. Don't like the dummies part? Get over it. It's a good book based on fundamentals that will help increase the chances of retiring at 55.

Four Pillars of Investing by William Bernstein
An excellent book on investing and asset allocation to help maximize your return.

Best of luck to you...

Answer 2

If you don't have a retirement plan at work you could start throwing that money into a mutual fund to at least get it out of your hands and into somewhere that it is working earning interest. If you do that within an IRA it will grow tax-deferred and the total will rise more quickly.

If you have an employer who offers a 401K, particularly if the employer matches contributions, throw all of it into there to get that benefit.

Next step will be to rollover those funds into something that matches your needs more carefully. You are young enough that you can take aggressive risky investments since you will not need the funds out very soon.

Answer 3

If you work for a company that has a retirement plan invest in that first. Next invest in an IRA with mutual funds. About 80 percent stocks and 20 percent bonds, according to your age.

Answer 4

You're in great shape - and good for you - it's never too early to start.

If you have a 401(k) opportunity at work, ask them to deduct in pre-tax dollars from your paycheck the maximum amount that would entitle you to employer matching.

Then separately, open a Roth IRA and contribute to it with post-tax dollars. You don't get a tax deduction, but your money grows free of tax liability.

Talk to a tax advisor (banks and investment houses often have them) for more detailed information.

Answer 5

talk to a tax adivor or go a bank and talk to a financial specialist