FundRobot » Indexed Funds » Saving for retirement - a newbie.?

Old   #1 (permalink)
Posts: 2,506
Default saving for retirement - a newbie.

I just turned 20 last month and I want to start saving as soon as possible for retirement. However, lucky me, my parents aren't willing to help even explain the process, and any employer I've ever had, had no 401 to contribute into.

I know that leaves me with an IRA of some sort, it's after that where I don't know what to do. There are two types of IRA's, which one is better? What are the differences between them?

There are a whole bunch of different options when putting your money into an IRA after that. What are they? What's the best one to use? The risks of them all? How do I know where to put my money with all those choices? What do I have to do personally or is it just I give the bank my money and they handle it?

From there, what bank should I put my money into, or are they all the same? What happens if I put my money into a bank and then I move far away? I believe closing accounts causes fees and then I'd have to reopen one elsewhere or is there some transfer process that wouldn't give me huge fee's for having to switch?

Sorry for all the questions, I don't want to mess up my future, and as the way it's looking my generation would be lucky to see a single cent of social security. Between that and sh*tty employers, it leaves every little bit of retirement saving/expense up to me so I want to know every step of what I would be doing in detail.

If I left anything out feel free to go into as much detail about this as possible. The more information the better. Thanks.
Tech009 is offline   Reply With Quote
Old   #2 (permalink)
Posts: 2,646
Default saving for retirement - a newbie.

Roth IRA would be your best choice as they do not tax you when you retire and pull your money out. You could use vanguard (no fees) and do a low risk stock market index fund to start off with. That is a winner for sure. Check for banks that have no fees, free checking and a good report among friends and colleagues. If you move you can always use the same bank.
Mary500 is offline   Reply With Quote
Old   #3 (permalink)
Posts: 2,613
Default saving for retirement - a newbie.

The best place for you to start is to go to your local library and have a look at the personal finance section. They have some great books that are easy to read, and it is a free resource.

I am Australian, so I don't know the details of what investment products they have for retirement in your country. However, a good rule of thumb is to save 10% of your income outside of those retirement plans, in a bank account designated savings. You keep a few thousand in there for emergencies, and any surplus you put in a mutual fund investment. To set one up, you go to your bank and see a financial advisor, who gets paid a small commission out of your investment when they set it up. You should ask them while you are there about IRAs and other investment products for retirement. They will have their finger on the pulse, so to speak.

Now, bank accounts -- you will need two. A saving one (needs to be high interest if possible, and if you have poor impulse control, a passbook you can only use over the counter during business hours is best, and have no internet banking) and a spending one that has a debit card. You should visit a few banks and compare products. Now, if you're a person who likes to pay with EFTPOS a lot, an account that charges a low monthly fee is best. If you're a person who takes all their pay out as cash and only makes 3 or 4 withdrawals a month, it might be cheaper to go with an account that charges a fee per transaction instead. Know how you use your money, and find a bank account that suits that. That will save you money in the long run. Most banks are pretty much the same these days. If you have to close accounts somewhere and open them somewhere else (I have only ever switched banks because I was unhappy with their performance) so be it. Don't worry about something that might never happen. :)

You go to your employer and get them to put the fist 10% (a set amount each pay) into that savings account, and the rest into your normal account. If they won't, you get all your wage put into the savings account, and then pay yourself 90% of your total wage each week as a direct debit into the spending account. Or vice versa, whatever you're comfortable with, so long as there is 10% of your money going into savings. You keep some in there for emergencies, and then direct debit money every month from that account into your mutual fund. The mutual fund is for long term (not retirement) savings, so if you want to buy a house one day, you can.

You need to go to the library and look at some books. They will be able to give you a better idea of your options, and they're full of tips. They will have more specific information about retirement plans in your country. Get to know some of the tax laws in your country -- over here, your home is capital gains tax free, for example, and money we put into our retirement savings (Super) is taxed at a low 15% instead of our marginal tax rate. Your country might have other rules that once you are aware of them, you can exploit for financial advantage. :)
PrettyHot88 is offline   Reply With Quote
Old   #4 (permalink)
Posts: 2,639
Default saving for retirement - a newbie.

Do not worry about a formal funding of retirement at this time. Use current money to pay current bills so that you are not wasting money(because that impacts your overall financial life, too).

Roth IRAs are after tax, so there is no advantage (beyond a few dollars) of doing that at this time. Traditional IRAs lower your taxable income, but you are already in a low bracket.

You have wife, kids, mini-van, and housing coming down the road. After you pay for those, you can formally fund a retirement account. In the meantime, you will read articles and listen to news reports that increase your knowledge.
Smile.ToMe is offline   Reply With Quote


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