How to Save For Retirement. A Simple Guide - RetirementSimulation.com

How to Save For Retirement: A Basic Guide

I'll start by saying that I'm not a financial advisor and that every person's situation has nuance. This is written for the average person and is a very basic guide. In general, I believe in the Bogleheads investing philosophy.

The essence of retirement investing is investing over time while limiting fees and taxes. Fees can eat into returns over time. Use the calculator below to see how small changes in fees can have huge differences in returns. I recommend using Vanguard. They have index fund fees as low as .03%.
Investment 1
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Investment 2
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Investment #1 Value
Investment #2 Value
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Start early and use tax sheltered accounts: Utilize retirement accounts that have tax advantages first. The type of account depends on your situation, whether it's a traditional IRA, SEP-IRA, 401k, etc. After the tax sheltered accounts are used, put extra money into an after tax account. Put the most tax efficient investments into the taxable account and the least efficient into the sheltered account. The dividends of certain investments, like REITS, are taxed as ordinary income, whereas most domestic stocks are taxed less as qualified dividends. This page does a good job of explaining the difference.

What should I invest in? Index funds from Vanguard are best for the average investor. You could simply choose a Vanguard retirement target fund and invest in that over time. These funds hold a mixture of US and international stocks and bonds that become more conservative as you approach your retirement year. The 3 fund portfolio is also a good option.

Insurance: Make sure that you have health insurance. Health care bills can be outrageous without insurance. Also, look into other forms of insurance that you might need, such as life, long term care, an umbrella policy, etc. This depends on the person and risk exposure.

The unknown: The biggest challenge with retirement planning is the unknown. Most people assume that what happened in the past will happen in the future. However, a quick look to the past or other countries can show what happens with hyper inflation or political instability. Even a small decrease in expected investment returns can have a huge impact on retirement income. For the average person, the best way to handle the unknown is to limit the things that can be controlled; taxes and investment fees, then hope for the best.