Maybe you just got your first job and think saving for retirement is something you’ll get around to when you’re older. Maybe you’re in your late 40s and think you’ve already missed your window so why bother now? Or maybe you’re putting some money toward retirement, but you haven’t looked at your account in years and have no clue if it’s on track or not.
Wherever you land, that uneasy feeling about your future is real, and it’s time to do something about it. National 401(k) Day is the Friday following Labor Day. It’s your reminder to check in and see what’s actually happening with your retirement. If you have no clue, that’s okay. This is the weekend to find out.
It doesn’t matter if you’re starting at 25 or 45, the best time to begin saving for retirement is today. Side note: If you still have debt and don’t have an emergency fund yet, set yourself up for success by taking care of those things first! Then start investing as soon as possible.
How Should You Start Investing for Retirement the Right Way?
For those of you who haven’t looked into 401(k)s before, a 401(k) is a tax-advantaged retirement savings plan offered by employers who often match your contributions up to a certain percentage. Your first priority is to get the full match your employer offers. For instance, if your employer offers a 4% match, you’ll want to contribute at least 4% to your 401(k). That’s free money!
Matthew, a 27-year-old from Washington, D.C., called into “The Ramsey Show” wanting to know how to start saving for retirement the right way.
Our advice for Matthew was pretty simple: Whatever kind of 401(k) your employer offers, get every dollar of match available. Ignoring a match is like leaving part of your paycheck on the table. Secondly, always choose a Roth account if you can. If your employer offers a Roth 401(k), use it. If not, invest in a traditional 401(k) up to your match and open a Roth IRA for the rest of your retirement savings.
Within your 401(k) or IRA, choose growth stock mutual funds spread across four types: growth and income (large cap), growth (mid cap), aggressive growth (small cap) and international.
Time is a powerful force when saving for retirement, and Matthew has lots of it on his side. If he starts saving just $200 a month now, he’ll have more than $1.7 million saved when he retires in 40 years (assuming an 11% rate of return).
Roth vs. Traditional: Which Is Better for Retirement?
At Ramsey, we teach people to always choose a Roth account if you can. Here’s the deal with Roth accounts: You pay taxes on the money now, then it grows completely tax-free, so when you pull it out in retirement, you pay nothing. With a traditional 401(k) or IRA, you get the tax break today, but you’ll pay taxes on every dollar you withdraw — which includes decades of growth.
This is where I get really excited. If your investments grow for 20 or 30 years, that growth becomes a huge chunk of your balance, and with a Roth, you never owe a dime of tax on it. That’s the Roth advantage. For Matthew, starting at 27, about 95% of what’s in his account at retirement will be growth. It’s a much better deal to pay taxes on the 5% that he invested than on the 95% it grows into — and the same goes for you.
Is Starting Late Still Worth It?
There’s almost no such thing as too late. Jimmy, a 49-year-old from New York City, called “The Ramsey Show” wanting to know how to start saving for a “comfortable” retirement at his age. No 401(k). No IRA. Nothing yet. He knew he was late to the game.
We told him the truth: He hadn’t missed anything he couldn’t start fixing right now. Step one was simple — start saving for retirement through the 401(k) his company already offered. Jimmy didn’t need a complicated plan or a finance degree. He needed to walk over to HR, sign up and start contributing.
We told Jimmy to save at least 15% of his gross income for retirement — the target for anyone who’s out of debt with an emergency fund in place. Since he was starting later, we told him he could go more aggressive if he wanted.
The whole point of National 401(k) Day is to take a real step toward saving for retirement — not pat yourself on the back for a perfect record or compare your progress to someone else’s. It doesn’t matter if your brother or your friends from pickleball have been doing this for years. You are responsible for you, and it’s not too late.
Your Move This 401(k) Day
You don’t need to have this all figured out by Monday. Just start with one real step like:
- If you’re starting from zero like Jimmy, sign up for your 401(k) today. “Someday” isn’t a retirement plan.
- If you’ve started early like Matthew, log in to your retirement account and make sure you’re getting the full match.
- If you have access to a Roth option at work, switch your contributions over to that.
- If you’re already getting the full company match in a traditional 401(k), start maxing out your Roth contributions in other accounts.
If you want help building an investing plan, talk with a SmartVestor Pro who can walk through it with you. And remember, “being young enough” or “having enough time” aren’t the most important things here. Starting to save for retirement today will make the biggest impact!
Rachel Cruze is a two-time #1 national bestselling author, financial expert and co-host of The Ramsey Show and Smart Money Happy Hour. Since 2010, Rachel has served at Ramsey Solutions, where she teaches people how to avoid debt, budget and win with money at any stage in life. She’s an energetic and thought-provoking speaker and has been speaking to audiences as large as 10,000 since the age of 15 when she began making appearances with her father, Dave Ramsey. She has appeared on Good Morning America, Nightline, Today, CNN and Fox and Friends and has been featured in People, Parade, Woman’s Day, Success and Real Simple. Rachel believes it’s possible for anyone to turn around their finances, win with money, and build a life they love. Follow Rachel on Instagram, Facebook, TikTok and YouTube.
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Rachel Cruze is a two-time #1 national bestselling author, financial expert and co-host of “The Ramsey Show” and “Smart Money Happy Hour.” Since 2010, Rachel has served at Ramsey Solutions, where she teaches people how to avoid debt, budget and win with money at any stage in life. She’s an energetic and thought-provoking speaker and has been speaking to audiences as large as 10,000 since the age of 15, when she began making appearances with her father, Dave Ramsey. She has appeared on “Good Morning America,” “Nightline,” “Today,” CNN and “Fox & Friends,” and has been featured in “People,” “Parade,” “Woman’s Day,” “Success” and “Real Simple.” Rachel believes it’s possible for anyone to turn around their finances, win with money and build a life they love.
