Retirement Planning 101: It’s Never Too Early or Too Late to Start Building Your Nest Egg

• You don’t need an employer-sponsored plan to save for retirement. 
• Don’t allow a fear of the stock market to keep you from investing for long-term goals.
• It’s never too late to start saving for retirement. In fact, the older you are, the more money the IRS allows you to invest.

Planning for retirement can feel intimidating. The total amount you need to save and invest can be overwhelming, especially if you’re struggling to get by in the here and now. Luckily, you don’t need much money to start retirement planning, and anyone can do it, even without a finance degree. Saving small amounts over a long period of time can add up, especially with the power of compounding.

Here’s a look at how you can get started on your retirement planning journey and actions you can take today to improve your financial future.

Get Educated About Your Retirement Account Options

There are many different types of retirement accounts, but most people only need to worry about a 401(k) or an Individual Retirement Account (IRA). Even if your employer doesn’t offer a retirement plan, you can still invest for your future independently. Common types of retirement accounts include: 

• 401(k): This account is offered through your employer, and you can contribute up to $22,500 in 2023. Contributions are tax-deductible the year you contribute (which lowers your current-year taxes), but your withdrawals will be taxed in retirement. If you work for an educational institution or the government, you may see a 403(b) or 457 plan offered, which work in mostly the same way.
• Traditional IRA: You can open this account independently of an employer and contribute up to $6,500 in 2023. Contributions are tax-deductible now, but your withdrawals are taxed in retirement. If you have a lower income level and tax rate in retirement, you’ll likely come out far ahead.
• Roth IRA: This account can also be opened without an employer. You can contribute up to $6,500 in 2023, but limits apply for high income earners. Contributions are not tax-deductible the year you contribute, but your qualified withdrawals in retirement are tax-free.
• SEP IRA: If you’re self-employed, this account could be a good option. You can contribute up to $66,000 in 2023, but only if it’s 25% or less of your income. Contributions are tax-deductible the year of your contribution, but your withdrawals in retirement are taxable. 

These limits might seem high if you’ve never set aside money for retirement, but you can start small. Even contributing $5, $10, or $20 per paycheck adds up to a meaningful amount over time. If you’re new to saving and need a starting point, set a few dollars aside with SmartSave, an automatic saving feature in the free Payactiv app¹. 

Shake Off Your Fear of the Stock Market

Saving for retirement is important. However, if you’re sticking money into your 401(k) without actually investing it, you’ll likely never reach your goals. Many people set aside money in their retirement accounts without choosing investments. If your 401(k) plan doesn’t automatically choose for you, your savings likely won’t grow any more than they would in a low-interest savings account.

Some people skip picking investments because they don’t realize there’s another step involved. Others are afraid of the stock market due to a lack of knowledge or bad experiences in the past. While there is a risk of losing money in the stock market, putting cash into savings alone likely won’t get the job done.

Consider the inflation we’ve experienced the past few years. Let’s say you set aside $1,000 in 2019 but didn’t invest it. If your savings account earned 0.25% APY during that time, your balance four years later would only be $1,010.04. And when inflation is higher than your interest rate, you end up losing out when you consider your spending power.

Learn How To Invest To Beat Inflation

The effects of inflation are one important reason to learn how to invest. Over long periods of time, the stock market as a whole has historically gone up and usually beats inflation. There are ups and downs in between, but if you’re investing over decades, your investments will likely be worth more in retirement than when you initially put the money into your account. Historically, the basket of stocks in the S&P 500 index go up by around 10% per year.

For example, if you invested that $1,000 in an S&P 500 index fund ten years ago, it would be worth about $3,217 today. Even after inflation, that $3,217 in 2023 dollars would have the buying power of about $2,466 in 2013 dollars, which is over $1,400 more than your original investment. In general, this type of diversified investment fund is better than concentrating your investments into a small group of single stocks.

If you’re overwhelmed by these terms and don’t know how to start, consider setting up a no-cost financial planning session, a free benefit available to Payactiv members.

It’s Never Too Late To Get Started

Don’t be discouraged if you’re a little older and just getting started on your retirement savings. While it’s true that compounding interest works its most powerful magic if you start while you’re young, the money you set aside going forward is still a major benefit for your future. 

If you’re over the age of 50, the IRS lets you make ‘catchup contributions’ to your retirement accounts so that you can build up a nest egg a little faster on a shorter timeline. In a 401(k) or 403(b), you can contribute an Extra $7,500 annually. In a Traditional or Roth IRA, you can funnel in an additional $1,000 per year.

Don’t Wait To Start Investing for Your Future

It’s never too early or too late to get started on retirement planning. Start setting aside funds for your retirement goals today and seek further education from a financial professional to help ensure you reach your ideal retirement. And don’t forget about the ways the free Payactiv app can help you get started.

¹ Standard data rates from your wireless service provider may apply.

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