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- I consciously ignored retirement planning in my 20s — I wanted to spend money on my priorities right now instead of saving for some day 40 years in the future.
- But when I turned 30, all that changed. I knew I had to catch up on saving for retirement.
- I started by asking a financial advisor for help, then opening a SEP IRA and funding it little by little.
- I also rolled over a 401(k) from a previous position and made an end-of-year catch-up contribution.
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I made the conscious decision not to care about saving for retirement in my 20s. My reasoning, while nonsensical and flawed, made sense to me at the time. I was working hard for the money I was making and wanted to spend it on things I wanted, like paying my rent and my current bills. The cash I did save was for goals that I hoped to accomplish over five years, not 40. I wanted to have a secure emergency fund, enough cash for a down payment on a future home, and a sizable amount for purchases that are so millennial (vacations, adventures, and experiences).
Every time someone brought up the idea of a retirement account, I rolled my eyes and tuned them out. Toward the end of my 20s, I invested in a 401(k) because my employer matched contributions. But by the time I had $1,000 in that account, I got laid off.
Right around the time I turned 30, everything changed. I decided that I wanted to stop being stubborn about my finances and admit my mistakes. I was approaching spending and saving all wrong. At the top of my list was to catch up on saving for retirement. Here are the first five steps I took to stay true to that goal.
I asked for help
When I decided to start saving seriously for retirement, I didn’t know what to do first. I asked friends and family for advice, and at the recommendation of my mom, I decided to go see the person who has been helping her navigate her investments and retirement accounts for years, a registered investment advisor.
The advisor took a look at my 401(k) and discussed retirement strategy options with me. This was helpful because it made me feel like I was getting educated on what my plan should be, and I stopped feeling so bad about starting so late.
This appointment was free and lasted an hour. This advisor is associated with a particular company (TD Ameritrade) and because of my mom’s suggestion and opinion, I decided to open up my retirement accounts there.
I considered all my retirement account options
I was always so intimidated by how many retirement account options there were. When people spoke about IRAs, 401(k)s, and SEP IRAs, I always wondered what the difference was and what I actually needed.
After doing some research and consulting with the advisor, I realized that the best thing to start with, for me and my situation, was a SEP IRA, which is a retirement plan that an employer or self-employed individual can establish.
Since I was running my own business and doing freelance work, this option made the most sense for me.
I rolled over my 401(k) into an IRA
At first I wondered what would happen to the $1,000 in my 401(k). I didn’t want to have multiple retirement accounts (at first) and wanted to make sure that money wasn’t going to be forgotten about or just sitting idly in an account.
Soon, I realized that it’s quite easy to roll over 401(k) money into a new retirement account, so I did that, adding the money to my SEP IRA. Having just one account to manage and contribute to was exactly the introductory strategy I was hoping for.
I contributed little by little
While you can contribute up to $57,000 or 25% of your income to a SEP IRA each year, I decided to contribute a lot less to start. I knew that making a large deposit into the SEP IRA right away would mess up my budgeting and overall financial saving goals. So, instead, I decided to start off by contributing $500 a month. This allowed me to continue putting money into my emergency fund every month, have disposable income, and pay all my bills.
I made an end-of-year catch-up contribution
At the end of the first year, I looked at my finances and made a big end-of-year contribution. This allowed me to build up year one of my SEP IRA and play a bit of catch-up. Even though I started to plan and save for retirement later than recommended (most experts recommend starting in your early 20s) I found that this strategy worked well for me and allowed me to play it safe every month. In…
Read More: 5 things I did to catch up on my retirement savings in my 30s