Inside: A retirement crisis is brewing, and Jason Momoa’s not gonna come save you. But an IRA will! I challenge you to open an IRA and fund it with whatever you can afford. It’s not as scary as it sounds. Here’s how to do it!
Hey there! This post is a part of the #WomenRockMoney movement to celebrate International Women’s Day and to inspire you to take charge of your finances, your business, and your dreams. Check it out!
I’ve written a lot about saving for retirement.But, I have a confession to make: sometimes I eat sliced deli cheese for breakfast.
No, wait. That wasn’t right. Let me try again.
I like to eat my pizza toppings separately from the main pizza wedge.
Gosh darnit, that wasn’t it either.
I’m not good at saving for retirement. There we go. That was it.
I’ve only got $11,739.24 in my own retirement savings accounts, according to my last financial progress report. That’s compared to my husband Zach, who has a balance of $61,720.38—over five times as much as me!
I’m a bona-fide adult now (or at least they tell me; I still haven’t gotten my official Grownup Certificate in the mail yet and so I decline to not eat cheese for breakfast). According to Fidelity, as a 30-year-old, I should have at least 1X my annual salary saved. Screw you, Fidelity, is what I say.
That doesn’t let me off the hook, though—and it doesn’t let you off either. In fact, Americans in general are pretty fan-fucking-tastically terrible at saving for retirement. And us women? We have it even worse.
A Retirement Crisis Is Brewing, and Jason Momoa’s Not Gonna Come Save You
As women, we have it pretty awesome in a lot of ways. We can grow amazing headbanging hair (not that I see a lot of my fellow kinfolk on the most pit floor—come join me!). We are more agile and can escape more easily when friends trap us in a shopping cart pushed into another row of shopping carts (true story).
We also live longer. Like, a lot longer. Seven years longer than men, on average.
But, let’s be honest. We also aren’t so great at a lot of things. We can’t pee our names in the snow (something I don’t recommend trying. Not that I would know.). Other dudes look at me weird when I tell them I hunt and fish (that’s right; I has gun, son).
We also make a lot less than men. On average, a woman will earn $430,000 less over her career thanks to the wage gap. It gets even worse for minorities: African American women lose out on $877,480 compared to men, and Latinas lose out on $1,007,080. In other words, shit’s broke.
Because women live longer than men and earn less money, that compounds into a crisis come retirement: women are 80% more likely to live in poverty in retirement. I don’t care who you are; poverty doesn’t look good on anyone, especially old women who should be out spreading their badassery and wisdom with the world a-la Grace and Frankie.
And if you’re on the wrong side of the retirement savings spectrum (which most people will be), no one’s going to come save you and make your life wonderful again. Especially not Jason Momoa, sadly (*dies a little bit inside*).
Saving for Retirement is Challenging
I get why the statistics don’t look good. It’s hard to save for retirement even for dudes. When you throw in student loans and home prices that are shooting up faster than a Roman candle compared to flatlining wages, it’s no wonder.
Do you even know how much money you should have saved for retirement? If not, then sit down, my friend, and take a deep breath.
To become financially independent (i.e., not reliant on anyone else or the government for cash), you need 25X your annual expenses saved up according to the four percent rule.
For someone spending $50,000 per year, that’s a big fat $1.25 million.
Luckily, you don’t need to save that amount of money all on your own. If you invest it wisely, start as early as possible, and save consistently, you might only need to come up with a fraction of that cash.
And for most people, one of the best ways to get started is with an Individual Retirement Account (IRA).
How an IRA Can Help You Save for Retirement
Some of us are covered with workplace retirement plans, like a 401(k) or a Thrift Savings Plan (TSP). Others of us are unlucky and are working for crappy employers who don’t offer workplace savings plans. Some people, like me, are self-employed (my boss is a huge asshole, har har har).
People with workplace retirement plans often get free money from their bosses for saving in their own accounts: one of the many perks of non-self-employment. It’s called an employer match, and if your workplace offers it, you should take advantage of it or I will personally hunt you down and poke you in the eye in the name of all who don’t have access to this workplace benefit. It’s the only 100% guaranteed return on your investment you’ll ever have.
Most financial advisors say you should be saving at least 15% of your income towards retirement, in whatever savings vehicle you wish. For millennials, it gets even worse. Thanks to the Patriarchy fucking everything up, we should save even more: a full 22% of our income, according to one study.
Here’s where IRAs come to the rescue.
For people with no workplace retirement savings plans, it can literally be your best chance to save for retirement.
For people who’ve already met their employer match, you can also save in an IRA to supplement your workplace retirement savings plan.
For example, let’s say your employer matches your retirement contributions up to 3% of your income. You can still save in your workplace retirement plan above that, you just won’t get any of that sweet, sweet extra skrilla from your boss.
Most of the time, you’re better off choosing your own investments anyways. So, if you save 3% of your income in a workplace plan, you can save the other 12%-19% in an IRA (up to the IRA limits of $5,500 per year). That should get you up to the target 15%-22% savings level (or at least as close to it as possible).
Roth IRA vs. Traditional IRA vs. SEP IRA
IRAs come in three main flavors.
SEP IRAs are for hobbits. Just kidding—they’re for self-employed people. But I am basically a hobbit, so there’s that. You can open a SEP IRA even if you’ve just got a side hustle, and you can pile up to $55,000 or 25% of your income each year into that puppy.
Traditional IRAs are one of the two most common types of IRAs. You can open them even if you already have a workplace retirement plan, and you can stash away up to $5,500 in there between a Traditional IRA and a Roth IRA each year. You’re allowed to take a tax deduction on money you put in there, but it’s taxed when you take the money out in retirement, just like your current paycheck.
Roth IRAs are my most favorite type of IRAs, and they’re also one of the most common types. I almost like them as much as red velvet cupcakes. They’re super-duper cool because you can actually take out the contributions you’ve made to your retirement account at any time, in case, you know, shit hits the fan. You can’t take any tax deduction on money you slap into your Roth IRA, but you are allowed to take it out totally tax-free in retirement. Take that, Patriarchy douches.
How do you open an IRA?
IRAs sound like some mystical account that requires pages and pages of paperwork, dust, and a lot of paper cuts.
In fact, IRAs are actually stupidly simple to open. As a stupid person, I should be the one to know. It’s about the same difficulty level as opening a regular ‘ol bank account. They’ll send you some confusing-looking documents at the end of the year (your tax forms), but all you have to do is find the relevant boxes and report that on your tax return.
The details of what to do with that account once it’s open are what trip people up. Should I invest in Acme Corporation? What about real estate? How do I buy an investment, anyways?
That’s why I like to recommend sticking with a roboadvisor if you’re a newbie. Betterment is where I got my start, and I absolutely love them. All you have to do is deposit an amount of money—any amount at all, answer a few questions, and it’ll automatically pick the best investments for you. I also use M1 Finance because it’s even cheaper and still does a lot of roboadvisor-ey things, but it allows you to choose your own investments and is the bee’s knees.
I recently opened a SEP IRA directly with the investment firm Vanguard because they’re the ones with the lowest fees, the best index funds, and a helluva company story. But, if you’re leery about investing and haven’t done much (or any) before, I’d recommend to stick with the roboadvisors. If you know a thing or two about investing, though, by all means, I’d recommend opening a Vanguard account.
Paycheck Challenge: Open and Fund an IRA
Enough is enough. Let’s not be broke-ass little old ladies living in cardboard boxes with our curlers! We’ve got plenty of time to change the future, even if you have nothing saved now.
So saving for retirement seems overwhelming? Let’s fix that. Instead of worrying about creating some crazy comprehensive retirement plan, just take the first step—open and fund an IRA with a starting amount. Whatever you can afford. $100? Great. $5? You do you, baby.
Let’s put off the worrying for later. There’s nothing that says you can’t open an IRA and then figure it out your retirement savings plan after the fact. Of course, I highly recommend you do figure out your retirement saving plan eventually, but the point here is to just chip away at the bits and pieces so that you can see saving for retirement isn’t a monster. It’s just a pesky little twerp that a bunch of rich old white dudes have made seem scarier than it really is.
If you don’t have an IRA already set up, I challenge you to go ahead and do it now. If you do have an IRA set up, can you bump up your savings rate, or put a little extra cash into it?
Did you open an IRA and fund it? Or did you contribute a bit extra to your existing IRA? Let me know! I want to hear how difficult it was, and where you chose to set it up at. Leave a comment below!