Where would you rather retire: on a yacht in the Mediterranean, or in a leaky cardboard box on the street?
If you said "a box on the street," then we have great news! You don’t need to do any planning or saving. But if you want to grow old in style, you’ve got to start saving now. That’s the bad news. The good news: Through the magic of compounding interest, a little saved now can be worth big bucks when you’re old and gray.
Here's exactly how much you should be saving for retirement, and how you should be saving it.
No excuses. None. Start NOW.
We get it. Kids are expensive. Money is tight. Mortgage and rent prices are astronomical.
It's hard as hell to save money. But if you want to retire rich -- or with 10 times your final salary, per the recommendation of Fidelity Investments -- you absolutely have to start now.
Can you manage to scrape up $100 a month? Even if you haven't saved a single penny by age 35, you can still grow a $300,000 retirement fund over time, Benjamin by Benjamin. Start upping those contributions when you can, and you'll retire with even more.
One type of retirement account you should consider is a Roth IRA. Unlike a 401(k), you can’t deduct contributions from your income taxes this year. But any profits from your Roth IRA investments are all yours, tax free, when you retire. Plus, if you get into financial trouble, you can withdraw your principal from a Roth IRA before you reach retirement age without penalty. It’s a great choice if you don’t expect to pay a lot in income taxes this year, or want to save up money to buy a house.
Starting in 2019, you can save up to $6,000 a year in your Roth IRA.
Never, ever pass up free money
If your job offers you a 401(k) retirement plan, you definitely want to participate: Your contributions are tax deductible, so you'll have even more money to invest. Financial planners say you should save 15 percent of your salary, including any matching contribution from your employer.
But if you can’t swing 15 percent right now, that’s still OK. You should still contribute at least as much is required to get the full employer match -- typically 3 to 6 percent of your pay. It’s literally free money.
Spread out your sta$h
Plenty of people have made fortunes betting big on tech stocks and bitcoin. But be careful betting your entire future on just one industry or company or you could lose it all. Experts say you need to spread out your stash.
First, you want to own different types of investments, say, stocks, bonds and real estate, so a sharp drop in any one of those sectors won’t ruin you. You’ll also want to diversify the stocks and bonds you own, so one company falling apart won’t cause you to fall apart.
You should also invest some money internationally. And finally, you should invest your money consistently over time -- don’t worry about timing the market.
Want something more specific? Of course you do. Don’t invest more than 20 percent of your retirement in the company you work for. And don’t invest more than 20 percent in any one industry, such as banks or tech makers. After all, if you went all in on tech at the end of 1999, you’d have lost more than 75 percent by August 2002.
Mix your money... automatically
Having the perfect mix of retirement investments used to be super complicated. These days, thanks to index funds and target date funds, it couldn’t be easier.
One of our favorite no-brainer investment options is a "target date" retirement fund. Offered by many employers and investment firms, these funds automatically rebalance themselves against risk as you approach retirement age. Blackrock’s LifePath Index 2040 Fund, for example, is heavily invested in stocks now. But in 20 years, the fund will have sold off much of its stock to invest in bonds and other safer investments. It’s a pretty good set-it-and-forget-it way to go.
That said, be sure to pay attention to the fees charged by funds, too. Many index funds offer fees of 0.1 percent or lower, which lets you keep most of your money. Others charge fees of 1 to 2 percent or higher. Skip those. After all, high fees could cost you hundreds of thousands of dollars over the course of your life. It’s definitely worth it to shop around.