Table of Contents
The importance of investing for your retirement
How much money should you save for retirement?
Traditional vs. Roth IRAs
Workplace retirement plans
How to invest for retirement
Aug 31, 2022
8 min read
Learning how to invest for retirement can feel daunting, but you don’t need to know everything to create an effective retirement investment plan.
Learning how to invest for retirement can feel daunting, but you don’t need to know everything to create an effective retirement investment plan. Understanding the basics of retirement accounts and the different investment options is a good place to start.
For many people, retirement is a long-term goal. You set aside a small amount of money each month for years. Then, once you stop working full-time, you use the money for living expenses. Someone who retires at 65 may need to rely on their retirement funds for 20-plus years; so the earlier you start investing for retirement, the better.
It can be helpful to look at how investing differs from putting money in a savings account, especially when you account for how compound interest—earning interest on interest—can boost your money’s growth over time.
Generally, people use a low-risk savings account to set aside money for emergencies or for money they plan to spend in a couple of months or years—perhaps to travel, purchase gifts, or buy a home. You might earn a little interest on your savings, but the main goal is to have the money when you need it.
Let’s look at what happens if you contribute $250 a month to a savings account that offers 3% annual percentage yield (APY) versus an investment account that returns an average of 10% per year. (A realistic estimate based on average stock market returns over time.)
The sooner you start, the more time you have for your money to grow.
It can be difficult to determine exactly how much you should contribute to your retirement investment accounts each month or year. One general rule of thumb is to invest 10% to 15% of your annual income (before taxes) for retirement. However, you may want to aim for a higher rate if you’re starting later in life. You might be able to set aside less of your money if your employer also contributes to your retirement account.
The amount you invest for retirement may also vary depending on:
A retirement calculator can help you determine how much you need to save. You can also play with a calculator to see how different savings rates can impact your retirement years, or how changing your lifestyle or adding an income stream during retirement would impact how much you need to save today.
Some people start with what they can afford today and try to increase their contribution amount by 1% every six months or year. They may make a larger jump in their savings rate after getting a new job or raise.
Find out how much you need for retirement with Titan’s Retirement Calculator.Learn More
Individual retirement arrangements—also called individual retirement accounts, or IRAs—are a common way to start investing. You need to have earned income for the year to contribute to an IRA. However, unlike the workplace retirement plans listed below, you can open an IRA on your own and it won’t be tied to an employer.
You can open an IRA with many banks, credit unions, brokerages, and financial advisers. When you do, you may be able to choose between a traditional or Roth account. The primary difference is how and when you’ll pay taxes:
, you may receive a tax deduction for the contributions you make during the year. Additionally, your retirement investments can grow tax-deferred, meaning you won’t pay taxes on the money you earn until you withdraw it.
, you contribute after-tax dollars, which means you never receive a tax deduction for your contributions. However, all your withdrawals—including all your investment earnings—could be tax-free later.
You can have both types of IRAs at the same time. But your total combined annual contributions can’t exceed the annual contribution limit for the year.
In addition to deciding between traditional and Roth accounts, you may be able to use one or several common types of workplace retirement plans. These may be available from your employer, or you may be able to open one on your own if you freelance or run a business. Both 401k(s)s and 403(b)s can also be traditional or Roth accounts, if the provider offers that option:
A 401(k) is an employer-sponsored retirement plan. You can have money sent directly to your 401(k) every pay day. Some employers also offer a matching contribution to your account. Your investment options and fees may depend on the company that manages the 401(k).
A 403(b) is similar to a 401(k), but for nonprofit and tax-exempt organizations, such as schools, hospitals, charities, or religious organizations.
You might want to open a SEP IRA if you're self-employed or own a small business. They have higher annual contribution limits than non-SEP IRAs. However, they have to be traditional IRAs, and if you have employees, you must make equal contributions for all eligible employees, including yourself.
Another traditional IRA option for the self-employed and small-business owners. You might benefit from higher contribution limits than with a traditional IRA. You also don’t necessarily have to contribute to every employees’ account, but you may have to match a portion of employees’ contributions.
Each type of retirement investment plan has its own rules. For example, there may be qualification requirements for who can open or contribute to a specific type of plan. There are also annual contribution limits, which often increase every couple of years.
Because they’re intended for retirement investments, you may also have to pay a penalty if you withdraw money from your retirement account (including IRAs) before you’re 59 ½ years old. There may be exceptions for certain situations, such as when you use the funds for medical expenses or to buy your first home.
Opening and contributing money to your retirement plan is an important first step. But you also need to decide how you want to invest your money.
With workplace plans, you might choose investment options when you first sign up. Your contributions could then be automatically invested in what you choose until you make a change.
Generally, you can choose from different types of funds with a workplace retirement plan. Depending on where you open it, you may have more choices with an IRA, including individual stocks and bonds.
Buying stock makes you a shareholder, or partial owner, of a corporation. You may make or lose money as the corporation’s value increases or decreases. Some companies give a portion of earnings to shareholders by paying you dividends.
A bond is a type of loan. You can lend your money to corporations and governments by buying bonds. Often, they’ll repay you with interest-only payments, which are called coupon payments. When the bond fully matures, the borrower repays the initial loan amount.
An annuity is a contract with an insurance company that can provide a steady stream of income. For example, in exchange for giving the company a large sum right now, you can receive monthly payments for the rest of your life. The payments could start right away or at some point in the future.
An index fund is designed to track the rise and fall of assets that share a commonality, such as their size or industry. For example, the S&P 500 index tracks 500 of the largest public companies in the US. And an S&P 500 index fund could hold a proportional amount of the 500 companies’ stocks to track the index. Both mutual funds and ETFs can be index funds.
A mutual fund can be made up of different types of investments, such as stocks and bonds. By investing in mutual funds, you can quickly and easily diversify, or spread out, your investments. Passively managed mutual funds are index funds. Actively managed mutual funds have portfolio managers who often try to outperform a benchmark index fund. Mutual funds aren’t traded on the stock market and may charge a variety of fees.
are similar to mutual funds in that they can be made up of (or track) a basket of securities. However, they’re traded on an exchange like a stock. Many ETFs are passive index funds, but there are actively managed ETFs available. ETFs may have lower initial investment requirements than mutual funds, but you may pay a fee for each trade.
. Target-date funds are a type of mutual fund or ETF that’s offered as a set-it-and-forget-it option. The funds could be made up of a mix of several index funds. The target-date fund changes its allocation based on how long it will be until your target retirement year.
As you consider how you want to invest for retirement, there could be opportunities to use different types of tax-advantaged accounts and investment products. You may also find that what worked best in the past no longer makes sense given your current goals, financial or personal situation, risk tolerance, and changes to the tax code.
At Titan, we are value investors: we aim to manage our portfolios with a steady focus on fundamentals and an eye on massive long-term growth potential. Investing with Titan is easy, transparent, and effective.
Get started today.
Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein.
This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any strategy managed by Titan. Any investments referred to, or described are not representative of all investments in strategies managed by Titan, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.
Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see Titan’s Legal Page for additional important information.
You might also like
How to Decide When to Retire In Five Easy Steps
The time to retire depends on the person, with proper planning you can align health needs and lifestyle with adequate financial support. Here's what you need to know.
Retirement Income Strategies: How to Manage Social Security, Investments, and RMDs
The retirement savings a person earns and invests during their working years are meant to last for the rest of their life. Learn how to manage your accumulated savings.
How to Take Penalty-Free Withdrawals From Your Retirement Account
Withdrawing retirement savings before retirement age usually will trigger an early withdrawal penalty. Learn about a few exceptions that may not apply to this case.
Understanding the SECURE Act Basics
Enacted on January 1, 2020, by then-president Donald Trump, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 is one of the largest retirement reforms of this generation.
© Copyright 2023 Titan Global Capital Management USA LLC. All Rights Reserved.
Please refer to Titan's Program Brochure for important additional information. Certain investments are not suitable for all investors. Before investing, you should consider your investment objectives and any fees charged by Titan. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested, including principal. Brokerage services are provided to Titan Clients by Titan Global Technologies LLC and Apex Clearing Corporation, both registered broker-dealers and members of FINRA/SIPC. For more information, visit our disclosures page. You may check the background of these firms by visiting FINRA's BrokerCheck.
Various Registered Investment Company products (“Third Party Funds”) offered by third party fund families and investment companies are made available on the platform. Some of these Third Party Funds are offered through Titan Global Technologies LLC. Other Third Party Funds are offered to advisory clients by Titan. Before investing in such Third Party Funds you should consult the specific supplemental information available for each product. Please refer to Titan's Program Brochure for important additional information. Certain Third Party Funds that are available on Titan’s platform are interval funds. Investments in interval funds are highly speculative and subject to a lack of liquidity that is generally available in other types of investments. Actual investment return and principal value is likely to fluctuate and may depreciate in value when redeemed. Liquidity and distributions are not guaranteed, and are subject to availability at the discretion of the Third Party Fund.
The cash sweep program is made available in coordination with Apex Clearing Corporation through Titan Global Technologies LLC. Please visit www.titan.com/legal for applicable terms and conditions and important disclosures.
Cryptocurrency advisory services are provided by Titan. Cryptocurrency trading is provided by Bakkt Crypto Solutions LLC ("Bakkt Crypto"). Bakkt Crypto is not a registered broker-dealer or a member of SIPC or FINRA. Cryptocurrencies are not securities and are not FDIC or SIPC insured. Bakkt Crypto is licensed to engage in virtual currency business activity by the New York State Department of Financial Services. Cryptocurrency execution services are provided by Bakkt Crypto (NMLS ID 1828849) through a software licensing agreement between Bakkt Crypto and Titan. Please ensure that you fully understand the risks involved before trading: bakkt.com/disclosures.
Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.
Contact Titan at firstname.lastname@example.org. 508 LaGuardia Place NY, NY 10012.