A common question I hear is, “How can I take my investing to the next level?” or “How do I start investing?” Ultimately, the real goal is to figure out how to invest more—and where. Many people already have access to an employer-sponsored retirement plan, contributing a small percentage of their salary, but the true opportunity and desire lies in increasing their investment potential to build meaningful wealth.

My advice? Start by focusing on your retirement account.

The most powerful way to level up your investment strategy is by utilizing two key types of investment accounts…

The Roth IRA and An Employer Provided Retirement Plan

It’s not a sexy or fancy option that gets you all excited— most investing isn’t. But they are effective and strategic.

I cannot say this enough: your 401K/403b/457 and a Roth IRA will be the two best places for you to prioritize investing as you continue to build more meaningful wealth over time.

We Invest for Retirement to Create Enough Income to Support Our Future Lifestyle

The goal of investing for retirement is to allow your investment account to grow through years of compounding, ultimately generating enough income to support the lifestyle you envision in retirement. After all, for most of us, there won’t be any more paychecks coming in once we retire.

Let’s walk through a couple of scenarios to give you a clearer picture of the funds you’ll need to maintain your future lifestyle.

The 25X Rule Will Help Guide You on How Much You Will Need Saved for Retirement

Many people often ask themselves, “Am I investing enough?” They want to know the potential of their current strategy and how it will translate into their financial future.

A great rule of thumb is to multiply your desired retirement annual income by 25. This in turn may support you drawing 4% from the account on an annual basis over a 30 year period. (Factors that *will* impact this include inflation, your investment allocation, taxes, market volatility, and your retirement age).

As an example, let’s say you retire at age 65 and no longer have a reliable, steady stream of income coming in. If you wanted to spend…

• $2,000 per month, or $24,000 per year, you would likely need to have around $600,000 invested.
  
  
• $5,000 per month, or $60,000 per year, you would likely need to have around $1,500,000 invested.
  
  
• $10,000 per month, or $120,000 per year, you would likely need to have around $3,000,000 invested.
  
  

This is a guideline, not a perfect science. There are many factors that go into the success of this, as noted above, but this will serve as a helpful foundation for you as you continue to save for retirement.

How To Prioritize Your Retirement Contributions

1. Up to the Employer Match: At an absolute minimum, I suggest that you contribute up to the employer match in your employer provided retirement account.
   
   
   • For example; if your employer will contribute up to 4% of your salary, then please find a way to contribute up to 4% of your salary. Those employer contributions are “free money” or what I consider part of your compensation. Take advantage of it.
     
     
2. Max Out Roth IRA Contributions: Then, if you are eligible, I would be looking to max out my Roth IRA contributions on an annual basis. If you are not income eligible, please consider the backdoor roth method.
   
   
3. Consider Maxing Out Employer Provided Retirement Contributions: If you have already maxed out your Roth IRA, then I would refocus my energy on maxing out your employer provided retirement plan. The IRS sets the maximum contribution amount per year, so please update your contributions annually to reflect that change.
   
   

Please note that there are also other investment accounts like health savings accounts and taxable investment accounts available to you, but working towards these max contributions is a significant goal that I’d like to see you achieve over time and as early as possible!

But… What IF I Need The Money Before Retirement?

You are able to take distributions from retirement accounts at age 59 1/2, penalty free. (If in a Roth, you are able to take out original contributions any time).

But I cannot stress this enough, let’s not forget the point of the retirement account. It is to save for retirement, plain and simple. We cannot discount the importance of having money set aside for ourselves in the future when we no longer have a steady stream of income coming in.

The types of retirement savings our grandparents and parents relied on may not be the same for many of us.

• Social Security. We don’t know what will happen with social security 20+ years from now. We can’t rely on that fully, and it likely will not provide you with what you need to live your full lifestyle anyway. It will assist, not cover everything.
  
  
• Pensions. Guaranteed streams of income after retirement based on a number of factors relating to their employment. A promised check every month through retirement. This is NOT the way of employers anymore and is only available to certain industries at this point.
  
  

Many of us may not be able to rely on either one of these options. So, when someone comes to me and says, well, what if I need the money? I would say there may be an option for you to withdraw if you must, BUT please try to find another option.

The money in your retirement account’s purpose is to be available to you during retirement. So, unless you have significant income or wealth coming your way from other sources, it is imperative that retirement savings is made a priority.

Retirement Account Restrictions vs. Taxable Accounts

Even though retirement accounts have restrictions, in most circumstances I still like to prioritize them before prioritizing taxable investment accounts.

Here’s the thing, I understand the notion that investing for retirement really doesn’t sound all that exciting. Just tucking money away for the future and not getting access to it until age 59 1/2? There has to be another way. There is. They are called taxable investment accounts.

But I really don’t see the need in prioritizing investing in a taxable investment account over a retirement account for you to have “access” to the cash for a few reasons:

1. Investing is not a short-term game so you shouldn’t be looking for “quick returns”. You cannot guarantee a positive return on your investments on a year-to-year basis. But history has shown, that the longer you invest your money, the less likely it is that you lose money.
   
   
2. Taxable accounts are exactly that – taxable. Retirement accounts have preferential tax treatment whereas taxable accounts will require you to pay tax on any income earned in the account.
   
   
3. I have an appreciation for forced savings. Remove the temptation. If it’s accessible to you, you will likely try to find a way to justify withdrawing the funds and using them even if they are earmarked for something completely different. Retirement accounts serve as that forced savings.
   
   

How to Start Investing and Taking Your Wealth to the Next Level

Step 1: Understand your short-term goals. What do you need in the next 5 years? Are you saving for a down payment, a business venture, etc. What amount do you need in the next 5 years? Create a savings plan for that and set it aside in a high-yield savings account or short term cash alternative.

Step 2: Have an emergency fund set aside. If you own a home or have children, I’d like to see this number somewhere between 3-6 months worth of monthly spending set aside for emergencies that may arise in the future. Having this set up will avoid the future urge or need to rely on retirement funds or to sell investments prematurely for short term expenses.

Step 3: Automate investing towards retirement. Automate your investing so you don’t have to think about it. You learn to live on the amount that hits your bank account, not the amount that your salary states. Learn to live on a little less and prioritize automating these retirement contributions.

Your income, short-term goal savings, and emergency fund should cover your immediate cash flow needs. This way, your long-term investments can be fully focused on supporting your retirement goals!

Feeling unsure about your retirement plans? Apply to schedule a free consultation call with me to better understand your financial goals and how I get best help you achieve them!