Start saving — even a little
Saving even a small amount of your income on a regular basis can help you build security. Once you start investing what you save, each dollar has the potential to start reaping the rewards of compounding.
A simple way to start saving is to have part of your paycheck deposited directly into your savings account. If you don't have direct deposit available at work, your bank may be able to set up automatic transfers from your checking account into your savings account.
Pay yourself first
If you have access to a 401(k)*, 403(b) or 457 tax-deferred savings plan at work, you can save for retirement by having a fixed amount taken out of your pay and put in your plan. This helps reduce your current taxable income which also reduces your current taxes. Neither your pre-tax contributions nor any of the earnings get taxed until they are withdrawn.
If your employer matches part of what you contribute, you should contribute the full amount for the match. If you don’t contribute the full amount, you’re missing out on free money from your employer.
Start an emergency fund
An emergency fund is a reserve of cash kept in an easy-to-access account that you can dip into in the event of a financial hardship like a job loss.
Aim to have enough cash set aside to cover at least six months' worth of living expenses. If you have to take money out of the fund, make sure you quickly restore the balance so you'll have enough cash available later.
Saving and investing for your goals
It's also important to decide what your financial goals are and to prioritize them. Then you’ll be ready to make decisions about how to save and invest for each goal.
There are different types of investments to choose from, including:
- Cash equivalents - bank savings accounts, short-term certificates of deposit, U.S. Treasury bills and money market funds
- Fixed income investments - bonds, bond funds and guaranteed insurance products like fixed annuities
- Equities - stocks and stock funds
You can choose a mix of investments based on your goals, your time horizon for achieving them, the level of return you'd like to try to get and your tolerance for risk.
IRAs and 529 plans
Workplace savings plans and Traditional and Roth IRAs can be great vehicles for retirement savings beyond any contributions to a plan at work. You may also want to consider how a 529 plan can be a tax-effective way to save and invest for your child's college education.
You should consider the investment objectives, risks, charges and expenses carefully before investing. Please call 877-518-9161 or log on to www.tiaa.org for product and fund prospectuses that contain this and other information. Please read the prospectuses carefully before investing.
*With a Roth 401(k), you voluntarily contribute post-tax funds to an IRA, thus not reducing your current taxable income. However, the Roth plan allows for tax-free growth and distribution, provided the contributions have been invested for at least 5 years and the account owner has reached age 59½.