How to get started saving for retirement


So many people I talk to love the idea of investing for retirement and know they need to be doing it, but they just don’t know how to start the journey.  As a result, they don’t do anything, months and then years go by and they’re still at square one, but now they’re pissed because they missed out on the red-hot stock market that increased 50% over the past few years.  So here is what I would do in order of “Stockiness” (stockiness is a word I just made up that loosely translates to investing wisely).


401k or 403b

If you work for a company that offers a 401k or a 403b, that is probably the best and easiest place to start investing.  First, most companies have it set up so it’s pretty easy to sign up and get started.  Also, since they deduct the money out of your paycheck, it might be easier for some people to save the money “without having to do anything”.  Plus there’s the benefit that most of these plans don’t have any minimum amounts you have to start an account with, so you can sign up, have then deduct your 4% or 10% or whatever, and you’re set.

Of course we’ve saved the best for last—there are two MAJOR advantages of 401k and 403b accounts that really help you boost your nestegg.  First, both are tax-deferred (much more on this in a later post) which means that you don’t get taxed on your contributions.  So when you put $10,000 into your 401k this year, you don’t pay taxes on that money; had you not used your 401k then you would be taxed at normal income rates which could go all the way up to 40% or even higher, depending on what your situation is—that’s $4000 right there.  Certainly, you’ll have to pay taxes when you withdraw the money in retirement but it’s pretty likely you’ll be paying a much lower tax rate then, compared to the tax rate you’re paying while you’re working.

The other MAJOR advantage of these accounts is that most companies offer some type of matching.  It’s typically something like they will match $0.50 for every dollar you put into your 401k up to 6% of your salary.  Every company is different on their match but there is one thing they all have in common—they’re giving you free money if you’re willing to take it.  Like so many things in investing, over time this matching can add up to a lot— tens or even hundreds of thousands of dollars for this little jewel.

As with all things, if it seems too good to be true, you should probably read the fine print.  There are a lot of rules associated with 401k and 403b accounts (as I said in the disclaimer, I’m not an expert here).  The big one is when you can withdraw the money.  The government allows those great tax advantages at the cost of limiting your ability to get at the money; the idea is to have you save that money for your retirement, not your next car or next Berkin handbag (which can cost as much as a car—totally blew me away when Foxy Lady told me that).  If you’re in a pinch you can get the money sooner, but it is a major pain in the butt, and often times there are penalties.  So the general rule is: put money in your 401k or 403b that you won’t need until your late 50s.


Individual Retirement Accounts (IRAs)

If your job doesn’t offer a 401k or 403b, the next best thing is probably an IRA.  They are similar to 401k accounts in that they have tax advantages that can really add up over time, so that is one of the MAJOR advantages.  Unfortunately, they don’t have the matching feature which is a bummer.  Also, similar to 401k and 403b accounts, these are meant for retirement savings (and have similar penalties for early withdrawal) so it’s best to put money here that you don’t plan on needing until your 50s or 60s.

Unlike 401k and 403b accounts, you have to set these up on your own.  It’s not difficult, but it certainly isn’t as easy as if you just check a box at work.  The first thing you’ll need to do is pick between a Roth IRA or a traditional IRA.  There’s a ton of debate on which is better, but as a general rule I would go with a traditional IRA.  Ironically, when I made that decision for myself 15 years ago I went with a Roth IRA and I think I made the wrong decision.

Then you’ll need to set up an account with Vanguard or Fidelity or one of a hundred other firms.  Another unfortunate feature of IRAs compared to 401k accounts is that they tend to have a minimum amount required to open an account.  For Vanguard it tends to be about $3000, so that may take a little while to gather before you can get started, but it’s still definitely worth the effort.

But there is a nice advantage that IRAs have over 401k accounts—you have many more investment options.  With a 401k you are limited to the mutual funds that the company has set up.  My experience with 401k accounts is that you have a good variety—bond funds, domestic stock funds, international stock funds, target retirement funds—but you may only have 10 or so choices.  With an IRA you can choose from almost any mutual fund there is (just to put that in perspective, Vanguard has 100 funds to choose from).


Brokerage account

If neither of the above options work for you (and that would seem really odd that they wouldn’t, but I guess you have your reasons), then you can open a regular brokerage account with Vanguard or Fidelity or others.  Here you could invest in all the same mutual funds that are available to you with IRA accounts.

As you’d expect, the major drawback on these is that they don’t have the tax advantages of the 401k, 403b, or IRA accounts and that can be a pretty huge deal.  On the other hand, they do not have any of the penalties associated with early withdraws, so that might be something attractive depending on what you have on the time horizon.


So there you go.  Investing is a long journey, but as some poet who’s been deal a long time said, “Every journey begins with a first step.”  So the first step is opening an account so you can start investing.


How did you get started investing?  We’d love to hear your story.

Greetings from the Stocky Fox

2015-02-11 image (sitting on a beach)

Why aren’t you a millionaire?  Why aren’t you retired, reading this blog while sipping a drink with a paper umbrella in the glass right now?  You read these crazy statistics that 80% of households have less than $10,000 saved and 90%+ of people don’t think they’ll ever be able to retire, so I guess that means they’re just planning on working until the day they die.  Thanks, but no thanks.

This is a blog about investing.  This is a blog about how I have wisely invested the family’s savings to become a millionaire before my 34th birthday.  This blog is about how I take all that money that Wall Street is dying to give out, while avoiding all the sucker bets that Wall Street uses to try to take it all back.  This is a blog about getting a ticket on the Financial Freedom Express.  The ride is great and the umbrella drinks are tasty, so I’ll see you there.


Hello, nice to meet you

My name is Stocky Fox.  I am 37 years old (that’s incredibly old for a fox whose average lifespan is only about 5 years, by the way).  Mrs. Fox and I have a 3-year old cub, ‘Lil Fox, and second, Mini Fox, who just joined us about four months ago.

I am a self-diagnosed personal-finance hobbiest.  Some people like building model airplanes or collecting stamps, some enjoy running marathons (never got that one—foxes are really fast over short distances, but we don’t have the stamina) or shopping for shoes.  I enjoy managing our family’s finances: setting up the accounts, determining which investments to choose, tracking the results and comparing them to the market benchmarks, creating graphs that show the Fox family’s progress towards its financial goals, and so on.  As hobbies go, I think it’s actually a pretty constructive one in that doing this well will help you achieve financial security and independence.  Read that line again . . . if you invest wisely and minimize the most common investing mistakes, you will take a major step towards financial security and independence.  That is Mr Fox’s goal (for really important statements I revert to third person), and maybe it’s yours too.

Mrs Fox and I met in business school, we have typical office jobs, and live in the suburbs of Los Angeles.  Like a lot of you out there, we want to have a secure future for ourselves and our little ones.  Since we don’t make millions of dollars each year, we know that saving our money and then investing it wisely is paramount to achieving those goals.  Over the past 15 years of our adult working lives, we have saved diligently and in my opinion we have invested those savings wisely.  What’s our end goal?  We want to retire while we’re still young so we can spend more time with our little cubs as they grow up, we want to buy a sailboat and cruise around the world, we want to ensure that our cubs can go to the absolute best university their grades and drive can get them in to, we want to go into our golden years without financial constraints or worries.

I started saving money when I was in college, and I immediately started investing that money in the stock market.  I continued to save more, and after a few years I got a wonderful surprise: The money I made on my investments each year was more than I was saving each year.  I had caught the wave and was starting to ride it in.  Today we have a tidy little nestegg that will keep us flush well into our golden years.


Why is this blog worth your time?

Successfully investing isn’t hard and it doesn’t require a ton of brains (as evidenced by me), but it doesn’t come naturally for everyone.  Some of the smartest and most professionally successful people I know aren’t good financial planners.  A lot don’t have the time to dedicate to investing that I choose to.  Most don’t enjoy it near as much as I do (and they are probably less socially awkward than I am because of it).  Others are brilliant in many areas but investing doesn’t really “click” for them.

Maybe one of those descriptions applies to you.  If so, I hope this blog helps.  I’ll use this blog to show you how I stroll through the forest of Wall Street, gathering all the berries, salmon, and honeycomb my family could possibly want.  I’ll also show you how I avoided all the bear traps and enraged bee hives that could have really put a crimp on my plans.  I’ll make no promises (see disclosure), but if you read this blog and take the ideas into consideration as you make your own financial plans, I believe that you will be well on your way to catching the Financial Freedom Express.

All aboard.