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{Listen to the audio of this section and be sure to review your workbook action items at the bottom of this page}

Investing for retirement is a way to ensure you can retire wealthy.

Below are 6 steps you want to take as you invest for retirement over the long term so you can ensure you have the nest egg of your dreams.


1. Take full advantage of your employers match if they offer one

If your employer offers a match, take full advantage of it by contributing enough to get the full match, otherwise you’ll be leaving free money on the table and nothing beats free!
 

2. Start contributing as soon as possible

When it comes to building long term wealth, especially for retirement, time is your best friend. Thanks to the power of compounding the sooner you start the more money you’ll have come retirement. Here’s an illustration of this:

If you start contributing at age 25 and save $5,000 a year, earning an average return of 8%  until you turn 65, you’d have  ~$1.4 million. However, if you wait 5 years until age 30, and you save $5,000 a year consistently until you turn 65, you’d only have about $930,000.
If you wait an additional 5 years until you are 35 to start, you'd only have about $612,000. Time and consistency really matter.

Starting later? As long as you are willing to play some catch up and make the extra effort by saving and investing more, you'll be just fine.

 
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3. Max out your contributions

Right now you can put $18,500 a year in your employer sponsored plan and at 50 or older you can contribute an extra $6,000. Not only will this give you a nice annual tax break since contributions to 401(k), 403(b) and 457 (b) plans are before taxes, it will also get you closer to your retirement savings goals.

 

4. Diversify your investments

It’s all about choosing a mix of investments that help you maximize your returns while still mitigating risk. Don’t put all your money into one stock including your company stock as it that just greatly amplifies your risk.

 

5. Roll over your investments when you leave your employer

If you are moving jobs, its better to move your retirement savings into your own IRA with a brokerage e.g. Betterment, Vanguard, Fidelity etc (they will guide you step by step as to how the rollover process will work) where you have access to the entire stock market and potentially much lower fees. A lot of employers charge maintenance fees for maintaining accounts of former employees and these fees can add up. 

 

6. Don’t borrow or withdrawal from your retirement savings

While many employers give the option to borrow from your retirement saving’s it’s not such a great idea. If you decide to take out a loan, depending on the timeframe of your loan, you would miss out on the potential earnings and compounding. And while you won't be subject to paying a penalty or taxes since it's a loan, you will be paying interest, and like many people who borrow from their retirement accounts, you might have to reduce or stop your retirement contributions all together in order to be able to make the loan repayments so the lost opportunity is even greater.

If you decide to do an early withdrawal, you'd have to pay an early withdrawal penalty and federal ans state tax withholding in additional to losing all the benefits that come with compounding.

Also keep in mind that if you quit or get fired, and have a loan pending from your retirement account, it would have to be repaid  in full almost immediately otherwise you'll have to pay the early withdrawal penalty in additional to federal and state taxes.


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Using your workbook (located in the investing main menu), make sure you are all set to invest for retirement using the following pages: 

  • Retirement Investing