Over half of all workers (55%) intend to work during retirement to make ends meet.
The median age that American workers begin saving for retirement is 27. Here at Rise & Hedge, we weren’t much different.
But if we could go back and talk some sense into our 20-something selves, we would in a heartbeat.
At that age, priorities are different. People tend to not have mortgages or children. They live in the now because they can. After all, if you’re just beginning your career, why would you be thinking about its end?
They’re not preoccupied with how cost-of-living increases will impact them as a senior. Or how healthcare costs grow exponentially after the age of 65.
But sacrificing those early years of retirement savings can have far-reaching effects on the ultimate size of your nest egg.
The same goes for those who are saving, but who aren’t taking advantage of maximizing the amount of their employers’ match for their retirement plan.
Why the Match Is Critical
In our last issue of The 101, we broke down the main differences between popular employer-sponsored retirement plans, like the 401(k) and 403(b), and self-managed retirement plans, like traditional and Roth IRAs.
Today, since not all of our readers are eligible for employer-sponsored plans, we’ll be focusing on IRAs, which traditionally:
- Have a $6,500 annual limit.
- Have tax-free distributions after the age of retirement.
- And don’t offer a contribution match.
Until now.
You might’ve heard of Robinhood, the app-based digital brokerage that gained fame during the pandemic for hosting self-described “apes” whose collective short-squeeze tactics did some serious damage to billionaire-run hedge funds. (Sorry not sorry, Steve Cohen.)
But we’re not here to talk about meme stocks like GameStop, AMC or Bed, Bath & Beyond.
Robinhood has now forced itself into the conversation of …
The Best IRA Options
In January 2023, Robinhood announced that it would be the first online brokerage to offer an IRA with a 1% match.
Why is this so important?
For one, not enough Americans have access to employer-sponsored retirement plans offering a match. For another, IRAs are the chief alternative to employer-sponsored plans, and they historically have not offered a match.
According to Robinhood, that 1% match could equate to an extra $26,000 over the next 40 years.
But like with retirement savings in general, time is of the essence. You have to roll your existing IRA into Robinhood — or open and fund a new IRA — by Tuesday, April 18.
You can read Robinhood’s IRA Match FAQs here.
One more thing about setting up a successful retirement plan …
Dollar-Cost Averaging
We plan on going into greater detail about dollar-cost averaging (DCA) in the next issue of The 101, and how you can apply that lesson to a savings plan in the next issue of The Big Idea.
But for now, here are the CliffsNotes for DCA: You dedicate a recurring fixed amount to a savings plan or investment at regular intervals (weekly, monthly, etc.) over a certain period of time.
If you don’t pay attention to anything else, pay attention to this: DCA is critical to achieving a financially sound retirement.
By making automatic, recurring contributions to your retirement plan, you are ensuring that — over time — you will steadily and safely grow your principal and be able to measure how that nest egg will hold up against the adjusted cost of living at your intended retirement age.
Have a plan, stick to the plan.
TL;DR
Over half of Americans plan on working in retirement to stay afloat. Being proactive about your retirement today can help prevent you from joining them. If you’re eligible for an employer-sponsored plan, maximize the employer match. If you’re not eligible, open a traditional or Roth IRA. And no matter what, commit to a DCA plan.