Ramen to Retirement: A Simple Guide on How to Easily Win the Saving Game

Hi, I’m Emma, a recent-ish college graduate just starting out in the “real world.” Join me on my journey from “Ramen to Retirement”: how I’m learning to budget my new corporate lifestyle and set myself up for retirement (starting by enrolling in my 401(k)…who knew?).

Step One: Acknowledging you (I) have a Problem

It all began when my dad read an article about how Gen Z was saving up more in retirement than any previous generation. He asked, “How much have you saved up so far?” Just between us (dear reader), the only thing resembling budgeting that I had done in the past few weeks was stop myself from getting panda express for the billionth time. 

He asked if I had enrolled in a 401(k) through my job. I had not. Don’t blame me, I had no idea how 401(k)s worked! Of course, I knew that I was supposed to have one eventually. I just didn’t know that eventually was really more like yesterday.

A quick perusal of my cluttered inbox revealed that my job had sent quite a few emails about enrolling in my 401(k) – whoops. Those emails explained that a 401(k) is an account that you can only get through your job. It helps you save for retirement by investing money straight from your paycheck into different funds and stocks. The longer you have until retirement, the more potential growth your account can have – perfect! At least I hadn’t waited too late to start saving.

Weird to think it could even be considered starting “late” when retirement seems SO far away, right?

Saveday, the company my employer is sponsoring the 401(k) with, had emailed as well. They promised simple enrollment in fifteen minutes or less. We’ll see about that. Becoming an investing expert in just 15 minutes? 15 minutes ago, I didn’t know what a 401(k) was.

Step Two: Taking Action… (Finally) Enrolling in my 401(k)

Alright, enough excuses. Time to see what this 401(k) situation was all about.

Clicking on the personalized link in saveday’s email took me straight to the enrollment page.

Enrolling in your 401(k) on saveday.com

As a proud full-time adult with my Social Security Number memorized 💁‍♀️, it took less than a minute to start my account. 

From there, I was asked a few questions about when I wanted to retire and how much risk I was comfortable with as an investor. I wasn’t sure how much risk would be best. Luckily, there was an assessment built into the process that helped explain what kind of portfolio was right for me. It also explained the difference between Roth and Traditional accounts and the types of investments saveday makes. I was surprised by how much I learned about retirement planning and investing just by enrolling!

Next, the contribution calculator walked me through deciding what percentage of my paycheck to contribute to my account each month. With saveday, you can change your contribution level at any time, which made me feel better about taking home less in my paycheck each month. Especially when I learned that saving for retirement is like running a marathon. Slow and steady wins the race!

Step Three: “Adulting” Achievement Unlocked!

And, voila! After selecting a contribution percentage, my account was set up and ready to receive contributions. Saveday automatically processes contributions each pay period directly through employer’s payroll. It’s super helpful that the money goes straight from my paycheck into my account.

Now my money is working hard for me, and I don’t have to lift a finger!

SaveDay has a dashboard so you can visually see what your money is doing. It’s pretty fun to look at. The bar graphs and pie charts show how much your money grows each month and where your assets are invested. Even though I’m not the one moving the money around, it makes me feel like a financial guru. (Wolf of Wall Street, who???) 

Realizing I had nearly missed the boat on learning about and enrolling in my 401(k) made me curious about what else I was missing in terms of finance and investing – so I’m going to find out. Come along as I continue taking baby steps toward becoming a full on r/personalfinance-level genius (okay, or at least a zillennial with a diverse investment portfolio).

If you aren’t still sure where to start, or want to learn more about 401(k)s before enrolling, the saveday website has lots of educational resources about 401(k) terms and common questions about 401(k)s available to check out.

See you next week!

-Emma

IRA vs. 401(k): What Are the Differences and Which One Is Better?

When choosing a retirement savings account, the two most common plans to consider and compare are an IRA vs. 401(k). Depending on your investment plans, you may choose to utilize one over the other — or a blend of both. Regardless, it is good to be aware of each accounts’ benefits to help you reach your goal of having enough money to live comfortably in your retirement years.

Let’s take a look at the differences between the plans and which one might be the best option for you.

What is an (IRA)?

Most brokerages or financial institutions that provide retirement plans can help you open an IRA. However, before you start your account, you’ll want to first pick which form of IRA you want. There are four basic types of accounts: traditional IRAs, Roth IRAs, SEP IRAs and SIMPLE IRAs. By discussing your specific needs with a certified tax consultant, they will help you make the most informed decision. Here are some things to consider:

  • Traditional IRA contributions are typically tax deductible; they are often referred to as “pre-tax” contributions. Taxation on these accounts occurs when you make a withdrawal.
  • Roth IRA contributions are made with after-tax earnings. This means you won’t get a tax break in the year you make the contribution. Once you retire, however, eligible Roth IRA withdrawals are tax-free.
  • A SEP IRA is a type of IRA in which ONLY the employer contributes to the account. While most businesses can use this as a retirement plan, mainly small business owners or self-employed individuals usually select this option because of cost.
  • Through a SIMPLE IRA both employees AND employers can contribute to traditional IRAs. Businesses with less than 100 employees can use this plan. A SIMPLE IRA cannot be a Roth IRA.

What is a 401(k)?

If your employer offers you a traditional 401(k) account as a retirement savings option, and you elect to participate, contributions to your account will come as deductions as a percentage of every paycheck. Those contributions will be made prior to calculating tax, or pre-tax dollars. That money is set aside specifically for you into an investment account. On occasion, some companies may even match your contributions depending on the contribution limits.

Roth 401(k)s are also available and a bit different. Your contributions are not tax-deductible and are made after-tax dollars. However, eligible withdrawals are often tax-free. (Some conditions apply.)

IRA vs. 401(k):

Here are a few points to consider when opening either an IRA or a 401(k):

IRA

  • Annual contribution limits for traditional and Roth IRAs are $6,000 as of 2021 and 2022, with an additional $1,000 catch-up contribution allowed for people ages 50 and older.
  • Like 401(k)s, contributions to traditional IRAs are generally tax-deductible.
  • Contributions to a Roth IRA are made with after-tax dollars, meaning you don’t receive a tax deduction in the year of the contribution.

401(k)

  • The contribution limit for 2022 are increasing to $20,500 annually, with an additional $6,500 catch-up contribution allowed for people ages 50 and older.
  • Some employers may match a percentage of their employees’ contributions up to a certain limit annually.
  • Withdrawals are taxed at your income tax rate, and there’s no penalty for withdrawals as long as you are 59½ or older.

IRA vs. 401(k): Which one is better?

If your company matches your 401(k) contributions and you only have the money to fund one account, the difference between an IRA and a 401(k) may be clear: the 401(k) could give you a larger investment for the same cost.

There’s no reason to stop there, though. If your salary allows you to contribute a larger amount to your 401(k) while also contributing a smaller amount to your IRA, you could consider investing in both.

In conclusion, the best option for you will depend on your own status and financial circumstances. But don’t let your fear of investing keep you from starting. Simply choose an investing strategy and watch your retirement balance grow.

If you want to learn more about creating the best possible 401(k) plan for your company at no cost contact SaveDay today.