Jobs are becoming less and less traditional nowadays. With more self-employment, jobs based solely on social media and websites (hello, blogging!) and various other jobs like bartending, coaching, tutoring, etc., there’s a good chance no one is sponsoring a retirement plan for you. But just because no one is sponsoring a retirement plan for you doesn’t mean you shouldn’t be saving for retirement yourself!
When planning and saving for your retirement without the help of an employer, there is a lot to consider. Below are some considerations to make when figuring out how to save for retirement when your employer doesn’t sponsor a plan for you.
Roth or Traditional IRA?
A traditional IRA is a retirement savings account that provides tax-deferred growth and potentially tax-deductible contributions. These accounts are great for those looking to build their retirement nest egg. The main benefit of a traditional IRA account is that the gains grow tax free, this includes capital appreciation gains and dividends received. Contributions are also tax deductible if your income is below the threshold determined by the IRS (click here for 2018 thresholds). The downfall to the traditional IRA is that funds are taxable when withdrawn, after the individual reaches age 59 ½.
A Roth IRA is a retirement savings account that is not tax-deductible and is not taxable if withdrawn after the individual reaches the age of 59 ½. The main benefit and distinction here is that gains grow tax free and the withdrawals are also tax free. So while the investor may not receive a taxable deduction upfront like on a traditional IRA, they are able to withdraw the funds tax free once over the age of 59 ½.
What broker do I use?
There are several well-known brokers out there. Many brokers offer free trades when you first sign up and after that they usually have a nominal fee of about $5-15 per trade. The number one priority is making sure you use a broker that is legitimate and secure. Other than that, the various brokers are all pretty similar, so it’s really about personal preference regarding functionality and features. Some brokers you can consider are Fidelity, Morgan Stanley Wealth Management, TD Ameritrade, Charles Schwab, Vanguard.
A financial advisor is a person who offers a range of financial services tailored to fit their clients’ needs. A financial advisor will work with you to create a retirement plan to fit your specific financial situation and goals. Financial advisors are great because they do all the work for you, while making sure your plan is customized to fit exactly what works for you. The cost of the services provided by financial advisors vary and can be charged as a percentage, flat fee or commission. A few examples of financial advisors or wealth management companies are Morgan Stanley, Northwestern Mutual, Bank of America and even your local bank.
Robo-advisors are financial advisors that provide investment management with moderate to minimal human interaction. The financial advice they provide is based on algorithms, rather than humans making the decisions and doing the research. Some of the big players in the robo-advisor game are Betterment and Wealthfront. Additionally, big name banks like Morgan Stanley and Wells Fargo are rolling out platforms, as well. Generally these services charge a fee as a percentage of assets being managed, such as 0.25% or 0.4%, but the fees tend to be lower than for human financial advisors. The benefit to robo-advising is the research is done for you based on questions you answer to tailor your investments to fit what you are looking for.
How much should I save?
This is a hard question because there really isn’t a set amount you should be saving. The best way to figure out how much to save is to determine the dollar amount you would like to have when you retire. If you have a specific age you’d like to be retired by, work backwards and take the goal amount and divide it by the remaining years you have to save that amount.
If you do not have a target amount or age you would like to retire with or at, then think about saving a percentage of your income. This is a good method because as your salary increases, your retirement contribution will, as well. I recommend contributing as much as you can to your retirement plan while still being able to live a comfortable lifestyle. If you want to retire early, you will likely have to make some sacrifices to your lifestyle. These are all factors to take into consideration.
While it can be difficult to save for retirement with no help from your employer, it is far from impossible and it is still extremely important. Please do not skip out on contributing to your retirement just because no one is forcing you. While retirement can seem incredibly far out in the future, it is never too early to start saving.