Retirement investing is mostly about three things: putting money in the right accounts, holding a sensible mix of investments, and contributing steadily for decades. The details matter less than starting and staying the course.
Step 1: Use accounts in the right order
A common order for US workers:
- 401(k) or 403(b) up to the employer match. See how a 401(k) works.
- An IRA, often a Roth, especially if your plan’s funds are expensive. Roth IRA basics.
- Back to the 401(k) to contribute more, up to the annual limit.
- An HSA, if you have a high-deductible health plan: it can work as an extra retirement account for health costs.
- A taxable brokerage account once tax-advantaged space is used.
Self-employed? Look at a SEP IRA or a Solo 401(k).
Step 2: How much to save
A frequently cited target is 15% of gross income, including any employer match, from your 20s or early 30s. Starting later means a higher percentage. If 15% is impossible now, start with what you can and raise it by 1 percentage point each year or with each raise.
Step 3: Choose the mix
When retirement is far away, most of the money is usually in stocks for growth, with bonds added as you get closer. A single target-date fund handles this automatically. If you prefer to build it, a few index funds covering US stocks, international stocks and bonds are enough; see asset allocation.
Step 4: Keep costs low
A difference of 1% a year in fees can cost a large share of your final balance over a 40-year career. Read how to minimize investment fees.
Step 5: Protect the plan from yourself
- Do not cash out a 401(k) when you change jobs; roll it over.
- Keep contributing in downturns.
- Avoid borrowing from retirement accounts except in real emergencies.
Getting close to retirement
In the 5 to 10 years before, think about:
- When to claim Social Security (waiting past full retirement age up to 70 raises your benefit). Create an account at my Social Security to see your estimates.
- A withdrawal plan and how taxes will work across your accounts.
- Keeping one to two years of spending in safer assets.
For complex situations (pensions, a business, large balances), a fee-only fiduciary planner can be worth the cost.
