a good retirement plan usually accounts for increasing

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9 best retirement plans in November 2023

Bankrate principal writer and editor James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more.

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It can be easy to let planning for retirement slip by, while you’re focusing on your career or raising children. In fact, 55 percent of working Americans say they’re behind on retirement savings, according to a   2022 Bankrate survey . So it’s important to know what options you have and their benefits, when it comes to creating a financially secure future.

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On This Page

The 9 best retirement plans

Key plan benefits to consider, which retirement plan is best for you, how to get started, what is the best investment strategy for retirement.

• Related content
• Defined contribution plans
• Solo 401(k) plan
• Traditional pensions
• Guaranteed income annuities (GIAs)
• The Federal Thrift Savings Plan
• Cash-balance plans
• Cash-value life insurance plan
• Nonqualified deferred compensation plans (NQDC)

1. Defined contribution plans

Since their introduction in the early 1980s, defined contribution (DC) plans , which include 401(k)s, have all but taken over the retirement marketplace. Roughly 86 percent of Fortune 500 companies offered only DC plans rather than traditional pensions in 2019, according to a recent study from insurance broker Willis Towers Watson.

The 401(k) plan is the most ubiquitous DC plan among employers of all sizes, while the similarly structured 403(b) plan is offered to employees of public schools and certain tax-exempt organizations, and the 457(b) plan is most commonly available to state and local governments.

The employee's contribution limit for each plan is $22,500 in 2023 ($30,000 for those aged 50 and over).

Many DC plans offer a Roth version, such as the Roth 401(k) in which you use after-tax dollars to contribute, but you can take the money out tax-free at retirement.

"The Roth election makes sense if you expect your tax rate to be higher at retirement than it is at the time you're making the contribution," says Littell.

401(k) plans

A 401(k) plan is a tax-advantaged plan that offers a way to save for retirement. With a traditional 401(k) an employee contributes to the plan with pre-tax wages, meaning contributions are not considered taxable income. The 401(k) plan allows these contributions to grow tax-free until they’re withdrawn at retirement. At retirement, distributions create a taxable gain, though withdrawals before age 59 ½ may be subject to taxes and additional penalties.

With a Roth 401(k) an employee contributes after-tax dollars and gains are not taxed as long as they are withdrawn after age 59 1/2.

A 401(k) plan can be an easy way to save for retirement, because you can schedule the money to come out of your paycheck and be invested automatically. The money can be invested in a number of high-return investments such as stocks, and you won’t have to pay tax on the gains until you withdraw the funds (or ever in a Roth 401(k)). In addition, many employers offer you a match on contributions, giving you free money – and an automatic gain – just for saving.

One key disadvantage of 401(k) plans is that you may have to pay a penalty for accessing the money if you need it for an emergency. While many plans do allow you to take loans from your funds for qualified reasons, it’s not a guarantee that your employer’s plan will do that. Your investments are limited to the funds provided in your employer’s 401(k) program, so you may not be able to invest in what you want to.

What it means to you:

A 401(k) plan is one of the best ways to save for retirement, and if you can get bonus “match” money from your employer, you can save even more quickly.

403(b) plans

A 403(b) plan is much the same as a 401(k) plan, but it’s offered by public schools, charities and some churches, among others. The employee contributes pre-tax money to the plan, so contributions are not considered taxable income, and these funds can grow tax-free until retirement. At retirement, withdrawals are treated as ordinary income, and distributions before age 59 ½ may create additional taxes and penalties.

Similar to the Roth 401(k), a Roth 403(b) allows you to save after-tax funds and withdraw them tax-free in retirement.

A 403(b) is an effective and popular way to save for retirement, and you can schedule the money to be automatically deducted from your paycheck, helping you to save more effectively. The money can be invested in a number of investments, including annuities or high-return assets such as stock funds, and you won’t have to pay taxes until you withdraw the money. Some employers may also offer you a matching contribution if you save money in a 403(b).

Like the 401(k), the money in a 403(b) plan can be difficult to access unless you have a qualified emergency. While you may still be able to access the money without an emergency, it may cost you additional penalties and taxes, though you can also take a loan from your 403(b). Another downside: You may not be able to invest in what you want, since your options are limited to the plan’s investment choices.

What it means to you: A 403(b) plan is one of the best ways for workers in certain sectors to save for retirement, especially if they can receive any matching funds. This 403(b) calculator can help you determine how much you can save for retirement.

457(b) plans

A 457(b) plan is similar to a 401(k), but it’s available only for employees of state and local governments and some tax-exempt organizations. In this tax-advantaged plan, an employee can contribute to the plan with pre-tax wages, meaning the income is not taxed. The 457(b) allows contributions to grow tax-free until retirement, and when the employee withdraws money, it becomes taxable.

A 457(b) plan can be an effective way to save for retirement, because of its tax advantages. The plan offers some special catch-up savings provisions for older workers that other plans don’t offer, as well. The 457(b) is considered a supplemental savings plan, and so withdrawals before age 59 ½ are not subject to the 10 percent penalty that 403(b) plans are.

The typical 457(b) plan does not offer an employer match, which makes it much less attractive than a 401(k) plan. Also, it’s even tougher to take an emergency withdrawal from a 457(b) plan than from a 401(k).

A 457(b) plan can be a good retirement plan, but it does offer some drawbacks compared to other defined contributions plans. And by offering withdrawals before the typical retirement age of 59 ½ without an additional penalty, the 457(b) can be beneficial for retired public servants who may have a physical disability and need access to their money.

2. IRA plans

An IRA is a valuable retirement plan created by the U.S. government to help workers save for retirement. Individuals can contribute up to $6,500 to an account in 2023, and workers over age 50 can contribute up to $7,500.

There are many kinds of IRAs, including a traditional IRA, Roth IRA, spousal IRA, rollover IRA, SEP IRA and SIMPLE IRA. Here’s what each is and how they differ from one another.

Traditional IRA

A traditional IRA is a tax-advantaged plan that allows you significant tax breaks while you save for retirement. Anyone who earns money by working can contribute to the plan with pre-tax dollars, meaning any contributions are not taxable income. The IRA allows these contributions to grow tax-free until the account holder withdraws them at retirement and they become taxable. Earlier withdrawals may leave the employee subject to additional taxes and penalties.

A traditional IRA is a very popular account to invest for retirement, because it offers some valuable tax benefits, and it also allows you to purchase an almost-limitless number of investments – stocks, bonds, CDs, real estate and still other things. Perhaps the biggest benefit, though, is that you won’t owe any tax until you withdraw the money at retirement.

If you need your money from a traditional IRA, it can be costly to remove it because of taxes and additional penalties. And an IRA requires you to invest the money yourself, whether that’s in a bank or in stocks or bonds or something else entirely. You’ll have to decide where and how you’ll invest the money, even if that’s only to ask an adviser to invest it.

What it means to you: A traditional IRA is one of the best retirement plans around, though if you can get a 401(k) plan with a matching contribution, that’s somewhat better. But if your employer doesn’t offer a defined contribution plan, then a traditional IRA is available to you instead — though the tax-deductibility of contributions is eliminated at higher income levels.

A Roth IRA is a newer take on a traditional IRA, and it offers substantial tax benefits. Contributions to a Roth IRA are made with after-tax money, meaning you’ve paid taxes on money that goes into the account. In exchange, you won’t have to pay tax on any contributions and earnings that come out of the account at retirement.

The Roth IRA offers several advantages, including the special ability to avoid taxes on all money taken out of the account in retirement, at age 59 ½ or later. The Roth IRA also provides lots of flexibility, because you can often take out contributions – not earnings – at any time without taxes or penalties. This flexibility actually makes the Roth IRA a great retirement plan.

As with a traditional IRA, you’ll have full control over the investments made in a Roth IRA. And that means you’ll need to decide how to invest the money or have someone do that job for you. There are income limits for contributing to a Roth IRA, though there’s a back-door way to get money into one.

A Roth IRA is an excellent choice for its huge tax advantages, and it’s an excellent choice if you’re able to grow your earnings for retirement and keep the taxman from touching it again.

Spousal IRA

IRAs are normally reserved for workers who have earned income, but the spousal IRA allows the spouse of a worker with earned income to fund an IRA as well. However, the working spouse’s taxable income must be more than the contributions made to any IRAs, and the spousal IRA can either be a traditional IRA or a Roth IRA.

The biggest positive of the spousal IRA is that it allows a non-working spouse to take advantage of an IRA’s various benefits, either the traditional or Roth version.

There’s not a particular downside to a spousal IRA, though like all IRAs, you’ll have to decide how to invest the money.

The spousal IRA allows you to take care of your spouse’s retirement planning without forcing your partner to have earned income, as would usually be the case. That may allow your spouse to stay home or take care of other family needs.

Rollover IRA

A rollover IRA is created when you move a retirement account such as a 401(k) or IRA to a new IRA account. You “roll” the money from one account to the rollover IRA, and can still take advantage of the tax benefits of an IRA. You can establish a rollover IRA at any institution that allows you to do so, and the rollover IRA can be either a traditional IRA or a Roth IRA. There’s no limit to the amount of money that can be transferred into a rollover IRA.

A rollover IRA also allows you to convert the type of retirement account, from a traditional 401(k) to a Roth IRA. These types of transfers can create tax liabilities , however, so it’s important to understand the consequences before you decide how to proceed.

A rollover IRA allows you to continue to take advantage of attractive tax benefits, if you decide to leave a former employer’s 401(k) plan for whatever reason. If you simply want to change IRA providers for an existing IRA, you can transfer your account to a new provider. As in all IRAs, you can buy a wide variety of investments.

Like all IRAs, you’ll need to decide how to invest the money, and that may cause problems for some people. You should pay special attention to any tax consequences for rolling over your money, because they can be substantial. But this is generally only an issue if you’re converting your account type from a traditional to a Roth version.

A rollover IRA is a convenient way to move from a 401(k) to an IRA.

The SEP IRA is set up like a traditional IRA, but for small business owners and their employees. Only the employer can contribute to this plan, and contributions go into a SEP IRA for each employee rather than a trust fund. Self-employed individuals can also set up a SEP IRA.

Contribution limits in 2023 are 25 percent of compensation or $66,000, whichever is less. Figuring out contribution limits for self-employed individuals is a bit more complicated .

"It's very similar to a profit-sharing plan," says Littell, because contributions can be made at the discretion of the employer.

For employees, this is a freebie retirement account. For self-employed individuals, the higher contribution limits make them much more attractive than a regular IRA.

There's no certainty about how much employees will accumulate in this plan. Also, the money is more easily accessible. This can be viewed as more good than bad, but Littell views it as bad.

Account holders are still tasked with making investment decisions. Resist the temptation to break open the account early. If you tap the money before age 59 ½, you'll likely have to pay a 10 percent penalty on top of income tax.

With 401(k) plans, employers have to pass several nondiscrimination tests each year to make sure that highly compensated workers aren't contributing too much to the plan relative to the rank-and-file.

The SIMPLE IRA bypasses those requirements because the same benefits are provided to all employees. The employer has a choice of whether to contribute a 3 percent match or make a 2 percent non-elective contribution even if the employee saves nothing in his or her own SIMPLE IRA.

Littell says most SIMPLE IRAs are designed to provide a match, so they provide an opportunity for workers to make pre-tax salary deferrals and receive a matching contribution. To the employee, this plan doesn't look much different from a 401(k) plan.

The employee contribution has a limit of $15,500 for 2023, compared to $22,500 for other defined contribution plans. But most people don't contribute that much anyway, says Littell.

As with other DC plans, employees have the same decisions to make: how much to contribute and how to invest the money. Some entrepreneurs prefer the SIMPLE IRA to the SEP IRA – here are the key differences .

3. Solo 401(k) plan

Alternatively known as a Solo-k, Uni-k and One-participant k, the solo 401(k) plan is designed for a business owner and his or her spouse.

Because the business owner is both the employer and employee, elective deferrals of up to $22,500 can be made in 2023, plus a non-elective contribution of up to 25 percent of compensation up to a total annual contribution of $66,000 for businesses, not including catch-up contributions of $7,500 for 2023.

"If you don't have other employees, a solo is better than a SIMPLE IRA because you can contribute more to it," says Littell. "The SEP is a little easier to set up and to terminate." However, if you want to set up your plan as a Roth, you can't do it in a SEP, but you can with a Solo-k.

It's a bit more complicated to set up, and once assets exceed $250,000, you'll have to file an annual report on Form 5500-SE.

If you have plans to expand and hire employees, this plan won't work . Once you hire other workers, the IRS mandates that they must be included in the plan if they meet eligibility requirements, and the plan will be subject to non-discrimination testing. The solo 401(k) compares favorably to the popular SEP IRA, too .

4. Traditional pensions

Traditional pensions are a type of defined benefit (DB) plan, and they are one of the easiest to manage because so little is required of you as an employee.

Pensions are fully funded by employers and provide a fixed monthly benefit to workers at retirement. But DB plans are on the endangered species list because fewer companies are offering them. Just 14 percent of Fortune 500 companies enticed new workers with pension plans in 2019, down from 59 percent in 1998, according to data from Willis Towers Watson.

Why? DB plans require the employer to make good on an expensive promise to fund a hefty sum for your retirement. Pensions, which are payable for life, usually replace a percentage of your pay based on your tenure and salary.

A common formula is 1.5 percent of final average compensation multiplied by years of service, according to Littell. A worker with an average pay of $50,000 over a 25-year career, for example, would receive an annual pension payout of $18,750, or $1,562.50 a month.

This benefit addresses longevity risk – or the risk of running out of money before you die.

"If you understand that your company is providing a replacement of 30 percent to 40 percent of your pay for the rest of your life, plus you're getting 40 percent from Social Security, this provides a strong baseline of financial security," says Littell. "Additional savings can help but are not as central to your retirement security."

Since the formula is generally tied to years of service and compensation, the benefit grows more rapidly at the end of your career. "If you were to change jobs or if the company were to terminate the plan before you hit retirement age, you can get a lot less than the benefit you originally expected," says Littell.

Since company pensions are increasingly rare and valuable, if you are fortunate enough to have one, leaving the company can be a major decision. Should you stay or should you go? It depends on the financial strength of your employer, how long you’ve been with the company and how close you are to retiring. You can also factor in your job satisfaction and whether there are better employment opportunities elsewhere.

5. Guaranteed income annuities (GIAs)

Guaranteed income annuities are generally not offered by employers, but individuals can buy these annuities to create their own pensions. You can trade a big lump sum at retirement and buy an immediate annuity to get a monthly payment for life, but most people aren't comfortable with this arrangement. More popular are deferred income annuities that are paid into over time.

For example, at age 50, you can begin making premium payments until age 65, if that's when you plan to retire. "Each time you make a payment, it bumps up your payment for life," says Littell.

You can buy these on an after-tax basis, in which case you'll owe tax only on the plan's earnings. Or you can buy it within an IRA and can get an upfront tax deduction, but the entire annuity would be taxable when you take withdrawals.

Littell himself invested in a deferred income annuity to create an income stream for life. "It's very satisfying, it felt really good building a bigger pension over time," he says.

If you're not sure when you're going to retire or even if you're going to retire, then it may not make sense. "You're also locking into a strategy that you can't get rid of," he says.

In addition, annuities are complex legal contracts, and it can be difficult to understand your rights and rewards for signing up for an annuity. You’ll want to be fully informed about what the annuity will and won’t do for you.

You'll be getting bond-like returns and you lose the possibility of getting higher returns in the stock market in exchange for the guaranteed income. Since payments are for life, you also get more payments (and a better overall return) if you live longer.

"People forget that these decisions always involve a trade-off," Littell says.

6. The Federal Thrift Savings Plan

The Thrift Savings Plan (TSP) is a lot like a 401(k) plan on steroids, and it’s available to government workers and members of the uniformed services.

Participants choose from five low-cost investment options, including a bond fund, an S&P 500 index fund, a small-cap fund and an international stock fund — plus a fund that invests in specially issued Treasury securities.

On top of that, federal workers can choose from among several lifecycle funds with different target retirement dates that invest in those core funds, making investment decisions relatively easy.

Federal employees can get a 5 percent employer contribution to the TSP, which includes a 1 percent non-elective contribution, a dollar-for-dollar match for the next 3 percent and a 50 percent match for the next 2 percent contributed.

“The formula is a bit complicated, but if you put in 5 percent, they put in 5 percent,” says Littell. “Another positive is that the investment fees are shockingly low – four-hundredths of a percentage point.” That translates to 40 cents annually per $1,000 invested – much lower than you’ll find elsewhere.

As with all defined contribution plans, there’s always uncertainty about what your account balance might be when you retire.

You still need to decide how much to contribute, how to invest, and whether to make the Roth election. However, it makes a lot of sense to contribute at least 5 percent of your salary to get the maximum employer contribution.

7. Cash-balance plans

Cash-balance plans are a type of defined benefit, or pension plan, too.

But instead of replacing a certain percentage of your income for life, you are promised a certain hypothetical account balance based on contribution credits and investment credits (e.g., annual interest). One common setup for cash-balance plans is a company contribution credit of 6 percent of pay plus a 5 percent annual investment credit, says Littell.

The investment credits are a promise and are not based on actual contribution credits. For example, let's say a 5 percent return, or investment credit, is promised. If the plan assets earn more, the employer can decrease contributions. In fact, many companies that want to shed their traditional pension plan convert to a cash-balance plan because it allows them better control over the costs of the plan.

It still provides a promised benefit, and you don't have to contribute anything to it. "There's a fair amount of certainty in how much you're going to get," says Littell. Also, if you do decide to switch jobs, your account balance is portable so you'll get whatever the account is worth on your way out the door of your old job.

If the company changes from a generous pension plan to a cash-balance plan, older workers can potentially lose out, though some companies will grandfather long-term employees into the original plan. Also, the investment credits are relatively modest, typically 4 percent or 5 percent. "It becomes a conservative part of your portfolio," says Littell.

The date you retire will impact your benefit, and working longer is more advantageous. "Retiring early can truncate your benefit," says Littell.

Also, you'll get to choose from a lump sum or an annuity form of benefit. When given the option between a $200,000 lump sum or a monthly annuity check of $1,000 for life, “too many people,” choose the lump sum when they'd be better off getting the annuity for life, says Littell.

8. Cash-value life insurance plan

Some companies offer cash-value life insurance plans as a benefit.

There are various types: whole life, variable life, universal life and variable universal life. They provide a death benefit while at the same time building cash value, which could support your retirement needs. If you withdraw the cash value, the premiums you paid – your cost basis – come out first and are not subject to tax.

"There are some similarities to the Roth tax treatment, but more complicated,” says Littell. “You don't get a deduction on the way in, but if properly designed, you can get tax-free withdrawals on the way out."

It addresses multiple risks by providing either a death benefit or a source of income. Plus, you get tax deferral on the growth of your investment.

"If you don't do it right, if the policy lapses, you end up with a big tax bill," says Littell. Like other insurance solutions, once you buy it, you are more or less locked into the strategy for the long term. Another risk is that the products don't always perform as well as the illustrations might show that they will.

These products are for wealthier people who have already maxed out all other retirement savings vehicles. If you've reached the contribution limits for your 401(k) and your IRA, then you might consider investing in this type of life insurance.

9. Nonqualified deferred compensation plans (NQDC)

Unless you're a top executive in the C-suite, you can pretty much forget about being offered an NQDC plan . There are two main types: One looks like a 401(k) plan with salary deferrals and a company match, and the other is solely funded by the employer.

The catch is that most often the latter one is not really funded. The employer puts in writing a "mere promise to pay" and may make bookkeeping entries and set aside funds, but those funds are subject to claims by creditors.

The benefit is you can save money on a tax-deferred basis, but the employer can't take a tax deduction for its contribution until you start paying income tax on withdrawals.

They don't offer as much security, because the future promise to pay relies on the solvency of the company.

"There's some risk that you won't get your payments (from an NQDC plan) if the company has financial problems," says Littell.

For executives with access to an NQDC plan in addition to a 401(k) plan, Littell's advice is to max out the 401(k) contributions first. Then if the company is financially secure, contribute to the NQDC plan if it's set up like a 401(k) with a match.

Virtually all retirement plans offer a tax advantage, whether it's available upfront during the savings phase or when you're taking withdrawals. For example, traditional 401(k) contributions are made with pre-tax dollars, reducing your taxable income. Roth 401(k) plans, in contrast, are funded with after-tax dollars but withdrawals are tax-free. ( Here are other key differences between the two. )

Some retirement savings plans also include matching contributions from your employer, such as 401(k) or 403(b) plans, while others don’t. When trying to decide whether to invest in a 401(k) at work or an individual retirement account (IRA), go with the 401(k) if you get a company match – or do both if you can afford it.

If you were automatically enrolled in your company's 401(k) plan, check to make sure you’re taking full advantage of the company match if one is available.

And consider increasing your annual contribution, since many plans start you off at a paltry deferral level that is not enough to ensure retirement security. Roughly half of 401(k) plans that offer automatic enrollment, according to Vanguard, use a default savings deferral rate of just 3 percent. Yet T. Rowe Price says you should “aim to save at least 15 percent of your income each year.”

If you're self-employed, you also have several retirement savings options to choose from. In addition to the plans described below for rank-and-file workers as well as entrepreneurs, you can also invest in a Roth IRA or traditional IRA , subject to certain income limits, which have smaller annual contribution limits than most other plans. You also have a few extra options not available to everyone, including the SEP IRA, the SIMPLE IRA and the solo 401(k) .

In many cases, you simply won’t have a choice of retirement plans. You’ll have to take what your employer offers, whether that’s a 401(k), a 403(b), a defined-benefit plan or something else. But you can supplement that with an IRA, which is available to anyone regardless of their employer.

Here’s a comparison of the pros and cons of a few retirement plans.

Employer-offered retirement plans

Defined-contribution plans such as the 401(k) and 403(b) offer several benefits over a defined-benefit plan such as a pension plan:

• Portability: You can take your 401(k) or 403(b) to another employer when you change jobs or even roll it into an IRA at that point. A pension plan may stick with your employer, so if you leave the company, you may not have a plan.
• Potential for higher returns: A 401(k) or 403(b) may offer the potential for much higher returns because it can be invested in higher-return assets such as stocks.
• Freedom: Because of its portability, a defined-contribution plan gives you the ability to leave an employer without fear of losing retirement benefits.
• Not reliant on your employer’s success: Receiving an adequate pension may depend a lot on the continued existence of your employer. In contrast, a defined-contribution plan does not have this risk because of its portability.

While those advantages are important, defined-benefit plans offer some pros, too:

• Income that shouldn’t run out: One of the biggest benefits of a pension plan is that it typically pays until your death, meaning you will not outlive your income, a real risk with 401(k), 403(b) and other such plans.
• You don’t need to manage them: Pensions don’t require much of you. You don’t have to worry about investing your money or what kind of return it’s making or whether you’re properly invested. Your employer takes care of all of that.

So those are important considerations between defined-contribution plans and defined-benefit plans. More often than not, you won’t have a choice between the two at any individual employer.

Retirement plans for self-employed or small business owners

If you’re self-employed or own a small business, you have some further options for creating your own retirement plan. Three of the most popular options are a solo 401(k), a SIMPLE IRA and a SEP IRA, and these offer a number of benefits to participants:

• Higher contribution limits: Plans such as the solo 401(k) and SEP IRA give participants much higher contribution limits than a typical 401(k) plan.
• The ability to profit share: These plans may allow you to contribute to the employee limit and then add in an extra helping of profits as an employer contribution.
• Less regulation: These retirement plans typically reduce the amount of regulation required versus a standard plan, meaning it’s easier to administer them.
• Investible in higher-return assets: These plans can be invested in higher-return assets such as stocks or stock funds.
• Varied investment options: Unlike a typical company-administered retirement plan, these plans may allow you to invest in a wider array of assets.

So those are some of the key benefits of retirement plans for the self-employed or small business owners.

With some of these retirement plans (such as defined benefit and defined contribution plans), you’ll have access to the plan through your employer. So if your employer doesn’t offer them, you really don’t have that option at all. But if you’re self-employed (or even just running a side gig) or earn any income, then you have options to set up a retirement plan for yourself.

First, you’ll need to determine what kind of account you’ll need. If you’re not running a business, then your option is an IRA, but you’ll need to decide between a traditional and a Roth IRA .

If you do have a business – even a one-person shop – then you have a few more options, and you’ll need to come up with the best alternative for your situation.

Then you can contact a financial institution to determine if they offer the kind of plan you’re looking for. In the case of IRAs, almost all large financial institutions offer some form of IRA, and you can quickly set up an account at one of the major online brokerages .

In the case of self-employed plans, you may have to look a little more, since not all brokers have every type of plan, but high-quality brokers offer them and often charge no fee to establish one.

Many workers have both a 401(k) plan and an IRA at their disposal, so that gives them two tax-advantaged ways to save for retirement, and they should make the most of them. But it can make sense to use your account options strategically to really max out your benefits.

One of your biggest advantages is actually an employer who matches your retirement contributions up to some amount. The most important goal of saving in a 401(k) is to try and max out this employer match. It’s easy money that provides you an immediate return for saving.

For example, this employer “match” will often give you 50 to 100 percent of your contribution each year, up to some maximum, perhaps 3 to 5 percent of your salary.

To optimize your retirement accounts, experts recommend investing in both a 401(k) and an IRA in the following order:

• Max out your 401(k) match: The 401(k) is your top choice if your employer offers any kind of match. Once you receive this maximum free money, consider investing in an IRA.
• Max out your IRA: Turn to the IRA if you’ve maxed out your 401(k) match or if your employer doesn’t offer a 401(k) plan or a match. Experts favor the Roth IRA because of all its perks.
• Then max out your 401(k): If you’ve maxed out your IRA and you can save more, you can turn back to your 401(k) and add more up until the maximum annual contribution.

In any case, the best strategy to secure your financial future is to top out your accounts, saving the maximum legal amounts each year. The earlier you start investing for your future, the more your money will be able to compound, and these tax advantages can help you amass money even more quickly because you won’t have the extra drag from taxes.

Related content: Basics of saving for retirement

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IRA vs. 401(k): Which one is better? Previously Read 8 MIN READ

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Retirement Investments: A Beginner’s Guide

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Advancements in medicine and technology are helping us live longer than ever before. But the prospect of living in retirement for up to 40 years — often the same time frame an individual spends working — makes saving and planning all the more important.

Yet saving is only one piece of the retirement puzzle. Choosing the right underlying investments and retirement account are critical to getting the most from your savings. Here’s how to manage that process.

on Capitalize's website

How much should I save?

Many advisors recommend saving 10% to 15% of your income, but some savers may fall outside that target range. If you have doubts on your trajectory, consult our retirement calculator to pressure-test your approach. We are going to assume here that you already have some sense of how much you should be setting aside to reach your retirement goals.

How should I invest?

After establishing how much to save, it’s time to figure out what to invest in. There's a lot to consider when building a retirement portfolio, and we'll take you through some of those details below. But here are some of the most common products investors choose for retirement.

If you’re saving for retirement in your company’s 401(k) or a similar employer plan, it’s worth noting that not all of these investments may be available. But you can gain access to the other types of investments you desire by using different retirement accounts — more on those near the bottom of this page.

Target-date funds

An effective and low-maintenance way to maintain an appropriate asset allocation is through a target-date fund . Just pick the right “target date” (the year closest to when you’d like to retire) and the fund company will automatically adjust the allocation over time on your behalf.

Other funds

Diversification helps investors by decreasing overall investment risk while increasing potential for overall return. Mutual funds, index funds and ETFs all pool investor money into a collection of securities, allowing investors to diversify without having to purchase and manage individual securities.

Mutual funds: For years, most mutual funds have been actively managed by professional fund managers. This means that teams of analysts and portfolio managers research, analyze and select certain stocks that they expect will outperform to be part of their mutual fund. In recent years, passively managed funds, also called index funds, have gained traction for their generally lower costs and ease of ownership.

Index funds: Index funds are a type of mutual fund, but they operate more simply than active funds. There’s no fund manager picking stocks — these funds merely purchase shares of all the securities in an index, such as the S&P 500 — which keeps investors’ costs down. Iconic investors such as Warren Buffett have famously praised index funds, which has helped increase their popularity in recent years.

Exchange-traded funds: ETFs are like mutual funds, but with a key difference. They can be traded throughout the day on exchanges, like individual stocks and bonds. (Mutual funds can only be bought and sold for their prices set at the end of each trading day). ETF share prices are often lower than the minimums required for comparable mutual funds, which allows investors to attain broad exposure for less money.

Individual stocks and bonds

Some investors prefer researching and purchasing shares of individual stocks and bonds . It can take significant investment and know-how to build a diversified portfolio of individual securities, but a case can be made for including individual stocks and bonds as part of your investment strategy. For example, producing a steady stream of income can be compelling as you begin to withdraw money from your investments in retirement. Dividend stocks can provide a regular income stream, and constructing a bond ladder (buying numerous bonds maturing across a number of years) helps to manage interest rate risk while generating steady cash flow.

Some people sleep better at night knowing that all of their base expenses are covered by income streams they cannot outlive. This is where using a portion of your assets to acquire an investment product like an annuity can make sense. Purchasing an annuity shifts the risk of outliving your assets away from you to the insurance company that guarantees to pay you an income stream for life (make sure to review the credit rating of the insurance company). However, annuities can be costly, so buy one with only the features you need. Since variable annuities provide a guaranteed income that can increase with market returns, an investor might want to be more aggressive with the investments inside the annuity and more conservative with those outside the annuity.

Hire an advisor

If you’re wary of handling investment choices on your own, there are many different types of financial advisors to lend you a hand. Hiring a robo-advisor is a low-cost way to access investment help with low or no minimums. Robo-advisors use computer models and algorithms to help customize investments for your portfolio. Here are some of the top picks from our analysis of robo-advisors.

How does this fit into my portfolio?

When selecting investment products, it’s important to keep the big picture in mind. Take into consideration your goals, risk tolerance and time horizon, or the length of time you have to invest prior to reaching your goal. Together, these factors point you to the optimal asset allocation for your total investment portfolio . If you have multiple investment accounts, you'll want to consider them all when evaluating your asset allocation.

Retirement accounts generally should be the most aggressive part of your overall investment portfolio because these accounts usually have the longest time horizon. Additionally, in some accounts like a 401(k), you smooth your entry point into the markets over time through dollar-cost averaging . Retirement accounts are also a great place to be active or trade more frequently. Although we’re not advocating active trading, if you do need to trade, doing so in your tax-deferred retirement account is preferred since there aren’t any capital gains tax consequences. Taxes aren’t paid in traditional IRAs and 401(k)s until withdrawals are made.

“ And remember, the asset allocation and underlying investments of your retirement account should not be static. ”

To balance a more aggressive allocation within retirement accounts, you can be more conservative within taxable brokerage accounts. Since these accounts would usually be used first to satisfy any shorter-term goals or expenses incurred on the road toward retirement, having a more conservative allocation helps to reduce volatility, avoiding the possibility of the market being down when you need to withdraw funds.

And remember, the asset allocation and underlying investments of your retirement account should not be static. They should gradually change and adjust over time, becoming more conservative as you near the transition into retirement.

Throughout the market cycle, asset classes zig and zag. Sometimes stocks are up and bonds are down, but other times it's the other way around. Diversification minimizes the chance that one asset class derails the entire portfolio, truly demonstrating the old adage "don't put all your eggs in one basket!" You can diversify in many ways:

Active vs. passive. Incorporating mutual funds, which are actively managed, with index funds and ETFs, which are passively managed.

Industry. Mixing companies operating in all kinds of industries because the economic cycle affects each business differently.

Size. Combining holdings of large-cap, mid-cap and small-cap companies (big, medium-size and small companies).

Style. Blending growth and value stocks. Growth stocks are companies characterized by rapidly growing sales and profits. Value stocks are companies whose stocks are “on sale” or seem underpriced and undervalued. With bonds, mix credit quality and maturity dates.

Geography. Sometimes U.S. stocks and bonds outperform, but other times international will prevail, so have exposure to both.

If you’d like more background on how to get started, our Investing 101 guide may help. Again, if this sounds like more upkeep than you’d like to handle, a target-date fund or robo-advisor might be a good option.

Which retirement account should I use?

Now that you’re familiar with some of the most popular types of retirement investments, which retirement accounts should you use? Check out our handy guide on how to save for retirement to figure out the best retirement plan or account(s) for you. Accounts you might choose include:

Employer-sponsored plans, such as 401(k)/403(b)/457(b) and pension plans.

IRAs, traditional or Roth.

Self-employed or small-business plans, such as SEP, SIMPLE, solo 401(k) and profit-sharing plans.

On a similar note...

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The Best Retirement Plans for Individuals

Best retirement plans for self-employed individuals and small businesses, which retirement plan is best for you, best retirement plans in november 2023.

Our experts choose the best products and services to help make smart decisions with your money ( here's how ). In some cases, we receive a commission from our partners ; however, our opinions are our own. Terms apply to offers listed on this page.

The best retirement plan depends on your situation. If you have taxable income or work for an employer, you'll probably qualify for multiple retirement savings vehicles. And even if you don't work, you'll still have options. You can set up most retirement accounts through employers, but you'll also be able to open and manage your retirement accounts.

The four primary types of individual retirement accounts are:

• Traditional IRAs : a tax-advantaged savings account that lets your funds grow tax-deferred
• Roth IRAs : a tax-advantaged savings account of after-tax funds (money that you've already paid taxes on)
• Spousal IRAs : spouses earning a low (or no) annual income may open a separate IRA in their spouse's name 
• Rollover IRAs : funds moved over from a former employer 401(k) plan into an IRA

These are the main IRA options, but you can also set up nondeductible IRAs or self-directed IRAs (more on that below). Investors also have the option to invest in precious metals with gold IRAs and silver IRAs. The best gold IRAs offer liquidity, low spread fees, account flexibility, low account minimums, and human advisor access. 

On the employer-sponsored end, the type of employer you work for determines which retirement plan you're eligible to open. Your options are:

• 401(k) plans : traditional or Roth, typically offered by for-profit employers
• 403(b) plans : available to most non-profit employees
• 457(b) plans : reserved for government employees
• Thrift savings plans : reserved for government employees

If you're a self-employed individual, you can't use the traditional 401(k) account. Instead, you'll have to pick a solo 401(k) or SEP IRA (you can supplement either account with an IRA if you choose).

Here are the options for small business retirement accounts:

SIMPLE IRAs

Payroll deduction iras.

Keep reading to learn more about your options.

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Traditional IRAs, Roth IRAs, and SEP IRAs

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One of the most appealing components of independent retirement plans like IRAs is that you can open one as long as you've got taxable (earned) income. And even if you've got an existing employer-sponsored retirement account, you can usually set up a traditional IRA, Roth IRA, and other independent retirement accounts.

Traditional vs. Roth IRAs

Traditional IRAs let you save with pre-tax contributions, while Roth IRAs allow you to contribute after-tax dollars toward your retirement savings. As long as you're eligible (more on that below), experts generally recommend Roth IRAs for early-career workers who expect to be at a higher tax bracket in the future when they're making withdrawals , and traditional IRAs for higher-income workers who could use a tax deduction today.

Traditional IRAs and Roth IRAs both share the same contribution and catch-up contribution limits. For 2023, you can contribute up to $6,500 in annual contributions and up to $1,000 in annual catch-up contributions (if you're age 50 or older). The 2024 contribution limit is $7,000, with up to $1,000 in catch-up contributions.

The biggest difference between the two comes down to tax advantages and income limitations. The Roth IRA limits who can contribute, and how much.

For Roth IRAs, single filers can only contribute the maximum amount in 2023 as long as their modified adjusted gross income (MAGI) is less than $138,000. The MAGI limit in 2024 is $146,000. You can still contribute a lesser amount if you earn a little more, though.

Check out Insider's guide to the best brokers for commodity futures>>

You can find your MAGI by calculating your gross (before tax) income and subtracting any of your tax deductions from that amount to get your adjusted gross income (AGI). To calculate MAGI, you'll need to add back certain allowable deductions. Allowable deductions that can be added back include passive income or losses, deductions for IRA contributions, rental losses, deductions for student loan interest, and more. Alternatively, you ask your accountant or use an online calculator like the one below:

Married couples need to earn less than $218,000 a year to contribute the full amount (the 2024 income limitation is $230,000 for married couples).

You don't have to worry about income limits for traditional IRAs. However, if you or your spouse are covered by a retirement plan at work, you'll have to consider the income limits for tax-deductible contributions. This is because both traditional IRAs and 401(k)s are funded with pre-tax dollars.

For instance, in 2023 single filers can deduct the maximum contribution amount ($6,500) if they make $73,000 a year or less. Married couples filing jointly can also make full deductions if they make $116,000 a year or less. The amount you can deduct phases out, or decreases if your income exceeds these limits. While you can contribute to a 401(k) and traditional IRA at the same time, your ability to take a tax deduction for these contributions — across both accounts, combined — ends once you hit those income limits.

Read our guide to the best online brokerages>>

Spousal IRAs

There's also an option for married couples where one spouse doesn't earn taxable income. Spousal IRAs allow both spouses to contribute to a separate IRA as long as one spouse is employed and earns taxable income. This account allows the nonworking spouse to fund their own IRA.

Both spouses can contribute $6,500 per year, plus an additional $1,000 each if they're age 50 or older. This means two spouses together could contribute up to $15,000 per year with an IRA. In 2024, each can contribute $7,000 (or $8,000 if they are 50 or older) for up to $16,000 per year.

Rollover IRAs

These accounts let you convert your existing employer-sponsored retirement plan into an IRA, something experts generally recommend doing when you leave a job for a few reasons — primarily because you have more control over the investment options in an IRA than in a 401(k), and also because it's easier to consolidate your accounts for record-keeping.

Many online brokerages and financial institutions offer rollover IRAs , and some will even pay you to transfer your employer-sponsored plan to the IRA.

Self-directed IRAs (SDIRAs)

You can fund a self-directed IRA using traditional or Roth contributions (meaning the $6,500 and $7,500 contribution limits in 2023 are the same across all three — the 2024 limits of $7,000 and $8,000 are the same, too). But the difference between these accounts is mainly one of account custody and investment choices.

Unlike traditional and Roth IRAs, the IRS requires that all SDIRAs have a certified custodian or trustee who manages the account. These third parties handle the setup process and administrative duties of the IRA (e.g., executing transactions and assisting with account maintenance).

SDIRAs also give investors access to a wider range of investment options. With traditional and Roth IRAs, you're limited to mutual funds, ETFs , stocks, and other traditional investments. But SDIRAs allow you to invest in alternative assets like real estate, precious metals, and cryptocurrencies .

Read our guide to the best bitcoin IRAs>>

Nondeductible IRAs

Nondeductible IRAs are great for those who don't meet the income limits of Roth IRAs or make too much to qualify for a traditional IRA. For example, if you're filing taxes as an individual, you won't be eligible for a Roth IRA (even discounted contributions) if your MAGI is greater than $153,000 in 2023, or $228,000 for a married couple filing jointly. In 2024, those MAGI limits increase to $161,000 and $240,000, respectively.

If you've got an employer-sponsored retirement plan like a 401(k) and you make more than $83,000 (single filers), you won't qualify for a traditional IRA in 2023. The limit for married couples is $136,000.

Contributions for these accounts aren't tax deductible, meaning you'll be funding your IRA with post-tax dollars like a Roth IRA. The difference is that you'll still have to pay taxes on any earnings or interest from the account once you withdraw at age 59 and a half.

Best Employer-sponsored Retirement Plans

Employer-sponsored retirement plans are savings vehicles your employer provides. There are several types — including 401(k)s , 403(b)s, 457(b)s, and thrift savings plans — and in some instances, your employer will match a percentage of your annual contributions.

For-profit companies generally offer these plans, and most companies give you the choice between two versions: the traditional 401(k) or the Roth 401(k). Traditional 401(k)s grow with pre-tax dollars, but Roth 401(k)s rely on after-tax contributions, just like they do with IRAs. This means that you can either choose to pay taxes on your contributions upfront, or take a potential tax deduction now and pay them later when you withdraw funds from your retirement account.

You can contribute up to $22,500 in 2023 (or $23,000 in 2024), and individuals age 50 and older can contribute additional "catch-up" contributions of $7,500. The maximum limit for employer and employee contributions is $66,000 in 2023 (or $69,000 in 2024). Therefore, the maximum amount those 50 and older can contribute is $73,500 in 2023, or $76,500 in 2024.

Many employers also offer a 401(k) match. This means that your company may match a certain percentage of your annual contributions. These matches vary for each employer and generally range from 3% to 6%. For instance, if you make $50,000 per year, and your company matches 50% of your 401(k) contributions up to 5% of your salary, your employer can contribute up to $1,250 per year.

However, if you're employer matched 100% of your contributions up to 5%, you'd earn the other $1,250 per year, resulting in $2,500 total from your employer. 

No matter how big the match, experts generally consider it to be "free money" and recommend taking advantage wherever possible, even if you only contribute enough to get the full match and nothing more.

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Also referred to as tax-sheltered annuities, these retirement plans are typically designated for employees of public schools, 501 (c)(3) tax-exempt organizations, churches, and other non-profit companies. Like 401(k)s, 403(b)s may include employer matches, pre-tax contribution options, and after-tax (Roth) contribution options.

If you're under 50, you can contribute up to $22,500 (the limit in 2024 is $23,000). Those aged 50 and above can contribute an additional $7,500.

In addition to pre-tax and after-tax contributions, you can also contribute to your 403(b) by allowing your employer to withhold money from your paycheck to deposit into the account.

State and local governments and certain tax-exempt organizations can open 457(b)s for their employees. Like 403(b)s, you can also contribute to these accounts by asking your employer to set aside portions of your paychecks for your retirement plan. And in some cases, employers may allow you to make Roth — or after-tax — contributions. 

Like 401(k)s and 403(b)s, the 457(b) contribution limit for 2023 is $22,500. The catch-up contribution limit is $7,500. In 2024, the limit is $23,000 with a catch-up contribution of up to $7,500.

Thrift savings plans

Thrift savings plans (TSPs) are retirement accounts for federal and uniformed services employees. Like 401(k)s, these plans let you contribute either pre- or post-tax dollars. But, unlike many 401(k) employer matches, most TSPs offer a full 5% contribution match. This means your employer will match your contributions up to 5% of your salary.

The annual contribution limit for 2023 is $22,500 (the 2024 limit is $23,000). The catch-up contribution limit is $7,500.

You can make up to $66,000 in total annual contributions in 2023, or $69,000 in 2024.

If you're self-employed or a business owner with fewer than 100 employees, you'll have multiple retirement savings plans to choose from. Each plan has unique contribution limits and eligibility requirements. Take a closer look at your options below.

Solo 401(k)s

Solo 401(k)s are an option for self-employed individuals or business owners without full-time employees. Self-employed individuals can only contribute in one capacity, but business owners can contribute as both an employer and employee (and spouses of business owners may be able to contribute as well), meaning they can contribute twice as much. You can also make pre- or post-tax (Roth) contributions to your account. 

The $22,500 contribution limit — as well as the additional $7,500 catch-up contribution for people age 50 or older – applies to the 2023 tax year. In 2023, you can also earn up to $66,000 in total annual contributions. If you're a business owner contributing as both an employer and employee, this means you can make up to $66,000 in total annual contributions. Those aged 50 or older can contribute $73,500.

In 2024, the limit increases to $23,000 with up to $7,500 in catch-up contributions. You can earn up to $69,000 in annual contributions. Those aged 50 or older can contribute $76,500.

Simplified employee pension (SEP) IRAs are retirement vehicles managed by small businesses or self-employed individuals. According to the IRS, employees (including self-employed individuals) are eligible if they meet the following requirements:

• Have reached age 21
• Have worked for the employer in at least three of the last five years
• Received at least $750 in compensation in 2022

SEP IRAs also require that all contributions to the plan are 100% vested. This means that each employee holds immediate and complete ownership over all contributions — including any employer match — to their account.

Vesting protects employees against financial loss. For instance, an employer can forfeit amounts of an employee's account balance that isn't fully vested if that employee hasn't worked more than 500 hours in a year for five years, according to the IRS.

You can contribute up to $66,000 or 25% of your employee's compensation in 2023 (the number increases to $69,000 in 2024). However, unlike with the solo 401(k), you can't make Roth (after-tax) contributions or catch-up contributions.

SIMPLE IRAs are available to self-employed individuals or small businesses with no more than 100 employees. These retirement plans require employers to match each employee's contributions on a dollar-for-dollar basis up to 3% of the employee's salary, according to the IRS.

To qualify, employees (and self-employed individuals) must have made at least $5,000 in the last two years and expect to receive that same amount during the current year. But once you meet this requirement, you'll be 100% vested in all your SIMPLE IRA's earnings, meaning you have immediate ownership over both your and your employer's contributions. 

Unlike other retirement plans, SIMPLE IRAs and SEP IRAs give you total control over your retirement account. If you work for a small business that offers either of these plans, this prevents your employer from taking back its contributions, or an employer match, in the event of your leave or termination.

Employees can contribute up to $15,500 in 2023 (the limit for 2024 is $16,000). You can also add on a catch-up contribution of $3,500 if you're 50 or older.

There's an even simpler way for small businesses to set up IRAs for employees. With payroll deduction IRAs, businesses delegate most of the hard work to banks, insurance companies, and other financial institutions. Self-employed people can also set up these retirement accounts.

In other words, employees can set up payroll deductions with those institutions to fund their IRAs. But you'll first need to consult your employer to figure out which institutions it has partnered with. These accounts are generally best for employees who don't have access to other employer-sponsored retirement plans like 401(k)s and 457(b)s.

For 2023, you can contribute up to $6,500 in annual contributions, and up to $1,000 in annual catch-up contributions for employees age 50 or older. This means you can set aside up to $7,500 if you're at least 50 years old. In 2024, those limits increase to $7,000 with $1,000 in catch-up contributions, or $8,000 total.

If you're not a small business owner or self-employed individual, the best retirement plan for you usually depends on your type of employer, marital status, and short- and long-term savings goals. If you're employed, though, you'll still only have so much control since your employer determines which types of plans you can open.

However, for most employer-sponsored retirement accounts, you can decide whether or not to make pre-tax or post-tax (Roth) contributions to your account. Roth contributions are best for those who expect to pay more in taxes as they age, but you should consider pre-tax contributions if you don't mind paying taxes when you withdraw money from your account in retirement.

And you can boost your retirement savings even more by opening a separate IRA in addition to your employer-sponsored plan (you can still save toward retirement with an IRA if you're unemployed).

Self-employed individuals and small business owners also have a range of options. Solo 401(k)s and SEP IRAs are best for self-employed individuals and small businesses looking to maximize their annual retirement savings (you can make up to $66,000 in total annual contributions, or $69,000 in 2024, excluding the catch-up contribution). SIMPLE IRAs and payroll deduction IRAs are better options for small businesses that don't mind offering employees smaller annual contribution limits.

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Just a 1% increase in your 401(k) contribution can make a big difference. Learn how making the most of your retirement plan now could help ensure your golden years are even more golden.

When you contribute to a 401(k), 403(b), or IRA, you may be on a path to help secure your financial future. But could you save more? Making the most of your organization’s retirement plan now may mean greater financial security once you stop working.

“How much should I save for retirement?”

We get that question a lot.

“A good rule of thumb is to try to save 10–15% of your income toward retirement,” says Stanley Poorman, a financial professional with Principal ® , “but that also depends on when you get started. That may be fine if you’re 25; if you’re starting at 50, you may need to save more to retire comfortably. There’s no one-size-fits-all answer.”

Another factor is whether you have a matching contribution from your employer, and if so, what percentage the company contributes. Poorman suggests deferring enough of your pay to get that match. (Hey, it’s like free money.)

How often can you change your 401(k) contribution?

How often you can adjust your 401(k) or 403(b) contribution is generally determined by your employer and your retirement plan—it may be once a year or as often as you’d like.

If possible, reducing non-essential spending or allocating new income (maybe a year-end bonus?) could allow you to bump up the amount you’re saving.

A 1% increase only makes a small difference in your paycheck—but may make a big difference down the road. Consider the example below for a $35,000 annual income: 1

Imagine if you could increase it to 10% of your pay?

Wondering how to save more toward retirement? Read: “ 4 little known secrets from retirement super savers. ”

Good news about retirement contribution limits and income ranges

If you're already maxing out your retirement accounts, here’s some good news: The IRS increased the 2023 contribution limit for employer-sponsored plans, like 401(k)s, allowing you to put away more money for retirement. Anyone enrolled in their employer’s retirement plan and still working can generally make a maximum contribution of $22,500 per year. 2

And if you have a traditional or Roth IRA, your annual max contribution is $6,500.

Find the 2023 retirement contribution limits and income restrictions that affect you.

How to make catch-up contributions to your 401(k) or IRA (if you’re old enough)

How about this cool perk once you’ve hit the big 5-0:

You can contribute an additional $7,500 to your 401(k) or 403(b) plan once you’ve reached the annual maximum amount, but only if you’re age 50 or older and it’s an option in the plan. 3 And since these contributions are typically pre-tax, they’ll lower your current taxable income even more.

You can make catch-up contributions to an IRA, too. (That limit is $1,000.)

What's next?

If you have a Principal ® retirement account from your employer, log in to principal.com to increase your contribution and learn about rollover options. Don’t have an employer-sponsored retirement account? We can help you set up your own retirement savings with an IRA or Roth IRA account . Questions about your IRA—how to add money or make changes? Visit our Help with IRAs page .

Lost your job? 7 steps to help secure your benefits and finances

Losing your job can be emotionally challenging. We’re here to guide you through the financial to-dos you can check off now to help set you up for a brighter future.

It's open enrollment time: How to choose your benefits for next year

The end of the year gives you a chance to adjust contributions and coverage for a range of benefits, including insurance coverage and savings accounts. It's also a good time of year to check in on your retirement contributions.

Retirement date: Set! Here are 5 things to do before the big day.

Build your retirement budget, plan for retirement income, and more tips to help when you’re retiring from work.

1  This example is for illustrative purposes only. It assumes $35,000 in annual income, 3.5% annual wage growth, 30 years to retirement, 7% annual rate of return and a 25% tax bracket. Estimated monthly retirement income calculations assume a 4.5% annual withdrawal in retirement. The assumed rate of return is hypothetical and does not guarantee any future returns nor represent the return of any particular investment option. Reduced take-home pay is accurate for the initial year and would change based on participant’s annual pay. Estimated savings amounts shown do not reflect the impact of taxes on pre-tax distributions. Individual taxpayer circumstances may vary.

2 Contributions are limited to the lesser of the annual plan or the IRS limit, as indexed annually.

3 Some plans may not allow catch-up contributions to the plan.

This document is intended to be educational in nature and is not intended to be taken as a recommendation.

Investing involves risk, including possible loss of principal.

Asset allocation and diversification does not ensure a profit or protect against a loss. Equity investment options involve greater risk, including heightened volatility, than fixed-income investment options. Fixed income investments are subject to interest rate risk; as interest rates rise their value will decline.

Investment and insurance products are:

• Not insured by the Federal Deposit Insurance Corporation (FDIC) or any federal government agency.
• Not a deposit, obligation of, or guaranteed by any bank or banking affiliate.
• May lose value, including possible loss of the principal amount invested.

Insurance products and plan administrative services provided through Principal Life Insurance Company ® . Securities offered through Principal Securities, Inc., member SIPC and/or independent broker-dealers. Investment advisory products offered through Principal Advised Services, LLC. Referenced companies are members of the Principal Financial Group ® , Des Moines, Iowa 50392.

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The three retirement accounts you should try to maximize in 2022

These three retirement accounts can help you build long-term wealth, and you can get started today..

For some, retirement can seem so far into the future that it isn't worth addressing today. However, many would say that you can't get started early enough, because the sooner you start, the sooner you may be able to retire.

According to a 2020 Statista survey , 41% of Americans have less than $100,000 saved for retirement. And with the diminishing aid of pensions and Social Security , this leaves future generations in a vulnerable position of not having enough money to support their post-work lifestyles.

Fortunately there's ample opportunity to begin saving for retirement today . And with a few simple moves and commitments, you can rest peacefully knowing you're giving yourself a chance to retire comfortably — and even possibly retire early .

Select details three tax-advantaged retirement accounts you can begin to fill, and what to keep in mind with each one.

Our best selections in your inbox. Shopping recommendations that help upgrade your life, delivered weekly.  Sign-up here .

The three retirement accounts you should aim to fill in 2022

It's important to remember there isn't one clear-cut way to save for retirement. But it's likely not going to happen by stashing away money in a savings account , especially with record-low interest rates and high inflation . You must invest to reach your retirement goals. The accounts below each allow you to grow your wealth through the market, plus they allow for special tax benefits.

While investing in the stock market sounds treacherous, investing in simple, low-cost index funds can give you consistent returns over the long-haul. For myself, I have each one of these accounts, and invest in indices that track the S&P 500 . And once I decide to retire, my money will have been compounding for roughly 30 years.

But even if you're closer to your desired retirement age, there's still plenty of opportunity to build your retirement savings today. Here are the three accounts you may want to consider.

1) Health Savings Account (HSA)

A Health Savings Account (HSA) is an account where consumers with a high deductible health plan (HDHP) can put money away for future medical expenses. Here's how it works:

If your employer offers an HSA and you have a HDHP, you can elect to have part of your paycheck taken out pre-tax and put into an HSA. You can use these funds to be reimbursed for qualified medical expenses, or, you can invest the money in stocks, bonds or index funds as well.

And the kicker is that your money grows tax-free, as long as you use the funds for medical expenses. If you decide to use this as a retirement account, you can pull money out after 65 years old fee-free. You will just need to pay ordinary income tax on it, but you can use the money as you'd like and don't necessarily have to put it towards medical expenses.

This account is sometimes referred to as "triple tax advantaged" because money goes in tax-free, grows tax-free and can be taken out tax-free as long as it meets certain criteria.

In 2022, the deposit limits are $3,650 for single-filers and $7,300 for families. This is up slightly from 2021.

Note: If your employer doesn't have a HSA option, you can open an HSA yourself and you will earn a tax write-off for your contributions. I have my own personal HSA through Lively .

A 401(k) is an account offered by employers where you can put pre-tax money away for retirement . In some cases, your employer may even offer a dollar-for-dollar match, which is essentially "free money" to incentivize you to save.

However, the account comes with a few rules. You can only withdraw funds from your 401(k) (without incurring a penalty) once you reach the age of 59½. When you start withdrawing, you'll need to pay ordinary income tax on that money. And if you decide to not touch your 401(k) and want compound interest to continue working for you, you're still required to take distributions by Apr. 1 following the year when you turn 72.

In 2022, the deposit limit is $20,500, which does not include any matching dollars offered by your employer.

Note: If your employer doesn't offer a 401(k), you may want to open a traditional IRA , which offers similar benefits. You can contribute $6,000 per year to an IRA in 2022.

3) Roth IRA

A Roth IRA is a retirement account offered by several brokerages like Fidelity and Vanguard where you can invest post-tax money now and enjoy tax advantages when you retire. At the beginning, the account offers no tax incentives as you'll invest income that's already been taxed. However, there are excellent tax breaks on the back end, because all of the money, including gains, is not taxed when you withdraw your funds, which you can do once you're 59½ years old.

But if you need some flexibility, you can withdraw your contributions at any time with no penalty. So if you deposit $1,000 into a Roth IRA and invest it, and the balance grows to $1,200, you can pull the $1,000 back out with no fees or penalties.

In 2022, the deposit limit is $6,000 per person.

If you want a hands-off approach to investing, you can open a Roth IRA with a robo-advisor who will create you a custom portfolio based on your risk tolerance and retirement date. Robo-advisors like Wealthfront , Betterment and SoFi will adjust your investments over time as you get closer to your target date.

The power of investing for the future

All three of these accounts give you the ability to legally avoid taxes and invest in the stock market to set yourself up for retirement. Here's what that looks like for your wallet:

As an example, let's say you max out each of these account in 2022 as a single-filer. That would be a $30,150 in the stock market (assuming no employer match for 401k), and with a modest 7% average rate of return over 30 years, that investment will be worth nearly $230,000.

As another example, lets say you were able to invest $15,000 per year between all three accounts over the next 30 years. Assuming 7% growth, that would leave you with just over $1.5 million for a total investment of $450,000. And if you decided to do it for 35 years, your end result would be over $2.2 million.

Compound interest is built on a key factor: time. The longer your money has time in the market to work for you, the more it will compound and grow.

Bottom line

While saving for retirement is something that can be put off for a later date, it's never too early to get started. And by putting it off, you're giving your dollar bills less time to compound in the market.

So if you're still arranging your financial goals for the year , be sure to consider focusing some of your effort on these accounts — as long as your high-interest debts are paid down and you have a well-balanced budget .

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What Is the Average Retirement Savings Balance by Age?

Are you on track to have enough money for retirement? See how your savings stack up against your peers.

Retirement Savings Balances by Age

The amount you’ll need for retirement can vary based on factors such as lifestyle choices and your area’s cost of living. (Getty Images)

With pensions a rarity nowadays, it’s up to workers to save for their own retirement.

“I tell everyone to begin saving as early as possible,” says Laurie Rowley, CEO and co-founder of Icon Savings Plan, which offers IRAs that can be funded through payroll deductions.

But how much should you be saving? That’s a question a financial planner can help you answer, but it may also be helpful to consider how your personal savings compares to others in your age range.

Average Retirement Savings Balance by Age

Perhaps the most official measure of American retirement savings comes from the Federal Reserve System. The Fed calculated average retirement account balances for individuals in 2019, the latest year for which figures are available. Broken down by age, those balances are as follows:

For many people, a 401(k) plan is their largest retirement account. In 2022, financial app Empower calculated the average 401(k) balances of its users:

“As a starting point, those can be interesting to consider,” says Ben Bakkum, an investing researcher for retirement plan provider Betterment. However, he says workers should go deeper than looking at averages when determining their own savings goals.

Rule of Thumb for Retirement Savings

The amount you’ll need for retirement can vary based on factors such as lifestyle choices and your area’s cost of living. However, financial firm Fidelity suggests people save for retirement using the following rule of thumb based on their annual income:

Financial planners may have their own variation of this recommendation. For instance, Rowley suggests the following savings goals:

If these recommendations feel too ambitious, start with just six months’ worth of salary by age 30, says Lamar Brabham, CEO and founder of the Noel Taylor Agency, a financial services firm in Myrtle Beach, South Carolina. Then, work up to having four to five times more than that by age 40. While these rules of thumb vary slightly from advisor to advisor, it is apparent that many Americans are falling short. According to the Bureau of Labor Statistics, the average American's annual wages across all occupations as of May 2022 was $61,900. That means the average retirement account at age 67 should be $619,000, based on Fidelity’s guidelines.

How to Determine How Much to Save for Retirement

Before assuming you can’t reach the recommended level of savings, check to see how your current savings are expected to grow. You may be closer than you think.

“That’s one of the biggest struggles for some people,” says Vanessa N. Martinez, founder and CEO of Em-Powered Network, which provides professional consulting and mentorship. “When they see a big number, that seems scary.”

To provide some perspective, Martinez recommends using the investment calculator offered by the U.S. Securities and Exchange Commission to see how much your money can be expected to grow by retirement.

Younger workers who have decades until retirement – known as having a long time horizon – may find that even a modest amount of savings can grow significantly thanks to compounding gains. The rate of return and inflation are also factors to consider when determining whether you are saving enough.

“We usually talk to (clients) in terms of a combination of balance sheet and cash flow,” Brabham says. While having significant assets is important, retirees need to be able to access their money to create regular income.

“You have to have cash flow,” according to Brabham. “That’s what it’s all about.”

Cash flow can come from many income sources , including Social Security and pension payments, withdrawals from savings and income from rental property investments. Purchasing an annuity is another way to generate steady cash flow in retirement.

Tips to Boost Your Retirement Savings

If you don’t think you’ll be able to achieve the cash flow needed for a comfortable retirement, there are several ways to boost the balance in your accounts.

“One of the best ways is to make more money,” Bakkum says. That could mean looking for a better paying job, picking up additional hours or starting a side gig.

Another way to boost savings is by cutting spending. Martinez suggests using a 50/30/20 budgeting system in which 50% of your income is used for expenses you need, 30% can be spent on wants and 20% is set aside for savings. For those with tight budgets, she notes many people spend money on things they don’t even necessarily want, such as subscriptions they forget about.

Savings will go further in retirement if they aren’t eaten up by taxes. “We think tax is going to be a real problem,” Brabham says. To minimize how much people pay the tax collector later in life, Brabham tries to steer his clients toward Roth accounts. These require taxes be paid on contributions but then can be accessed tax-free after age 59 1/2.

While knowing the average retirement savings by age is one way to determine whether you are on track, meeting with a financial planner may be a better way to check your readiness for retirement. Either way, make saving consistently a financial priority to ensure you can retire when and how you want.

Tags: retirement , personal finance , personal budgets , savings

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The Pros and Cons of a SEP Account in Today's Volatile Markets

Today’s seesaw markets can be worrisome to investors saving for retirement. Watching account values rise and fall can cause you to feel anxious about your simplified employee pension (SEP) plan. A SEP retirement account’s advantages vary depending on the setup. However, your SEP has more advantages than disadvantages, even during times of market volatility. The major con for investors is not choosing to participate in a SEP when one is offered. This article examines the benefits and drawbacks of SEP accounts in more detail.

Key Takeaways

• A simplified employee pension is a type of individual retirement account that an employer or a self-employed person can establish.
• A SEP IRA is designed to help a company's employees save for their retirement.
• A SEP can also be set up by the self-employed owner for their own benefit.
• The maximum total contribution limits are the lesser of 25% of an employee’s compensation or $66,000 in 2023 and $69,000 in 2024.

A SEP is a type of individual retirement account (IRA) that an employer or a self-employed individual can establish. A SEP IRA is designed to help a company's employees save for their retirement, or a SEP can be set up by the self-employed owner for their own benefit.

However, the contributions are not funded by the employees, as in the case of a  401(k) , but instead, a SEP IRA is funded by the employer. The contributions are made directly to the employee's IRA. A SEP is a good retirement savings vehicle. However, rules limit the amount that can be contributed. The maximum contribution limits in 2022 and 2023 are the lesser of:

• 25% of an employee’s compensation (subject to $330,000 in 2023 and $345,000 in 2024), or
• $66,000 in 2023 and $69,000 in 2024

Account Set Up

SEP accounts are usually set up by the self-employed or a small business. The maximum value of contributions cannot exceed the lowest of the two values. Thus, both values should be calculated to determine the limit.

If a SEP is established as an IRA, individuals can usually make individual contributions up to the traditional IRA limit of $6,500 in 2023 ($7,000 in 2024) with an additional $1,000 contribution allowed each year for those over the age of 50.

SEP accounts are often a top choice for self-employed sole proprietors because they allow them to make pre-tax contributions to a retirement account of potentially $66,000 in 2023 and $69,000 in 2024 while also taking a business expense deduction. Sole proprietors are subject to special calculations for the deduction. Overall, each SEP plan will have its own provisions depending on the setup and contributor(s).

Employers are required to contribute the same percentage to each employee's account, including their own as an owner. Sole proprietors may decide to choose a solo 401(k) as an alternative to a SEP.

A solo 401(k) is similar to a SEP account, but it has its own rules and regulations. The solo 401(k) can allow for salary-deferred contributions of up to $22,500 in 2023. This amount increases to $23,000 in 2024. However, a solo 401(k) is subject to its own special maximum contribution calculations.

Whether you are an active or passive investor, you will have much larger retirement savings than people who do nothing.

The tax benefits of a SEP are basically the same as those of a 401k or other pre-tax retirement savings vehicle. All earnings accumulate with no immediate income tax obligations. Savings compound at a relatively high rate, giving you more money after retirement even after future taxes are paid on withdrawals.

SEP contributions can also be deductible for the contributor though deductions can vary depending on the situation.

Most small businesses offer little in the way of pension benefits. An employer making profit-sharing contributions on behalf of its employees is providing a benefit that helps attract and retain quality employees at a lower cost than increasing salaries.

Changing Investments Without Tax Liabilities

A SEP is a vehicle you can use to manage a portfolio actively. All trades are made with no tax consequences. You can base decisions on total return and what market conditions dictate.

Many SEP providers offer a wide range of investment choices, such as exchange traded funds (ETFs) , which contain a basket of stocks to help diversify the risk associated with investing in the equity markets.

Mutual funds , which are portfolios of securities managed by an investment manager, are common investment vehicles in SEP accounts. Savers can choose from several mutual funds and have their contributions deposited regularly.

This passive investment strategy is a major pro in the downward stage of a volatile market since dollar-cost averaging  automatically takes place. Every deposit purchases a greater number of fund shares as the market goes down and fewer shares when it is rising.

What Are Some of the Advantages of a SEP Account?

Some of the advantages of a SEP account include a reduction in taxable income, tax-deferred compounding, high contribution limits, and a practical way to save for retirement.

What Are the Contribution Limits for a SEP Account?

The contribution limit for a SEP account is the lesser of 25% of an employee's income or $66,000 in 2023. This amount rises to $69,000 in 2024.

Can I Contribute to a SEP Account?

As an employee, you cannot contribute to a SEP account. Only employers can contribute to a SEP account and they decide the amount that is contributed. An employer can also decide not to contribute any amount at all.

SEP accounts have a great deal of variation for sole proprietors versus employer contributions for employees. Like any employer-offered retirement plan, SEP accounts can increase the pay received beyond a standard salary. In fact, they are usually set up as an additional employee benefit.

Employees can take advantage of all the pros with minimal account management. If market volatility is driving the market down, shift to conservative investments, such as bonds . If the market starts to rise, shift assets back to stocks. If you don't want to be bothered, pick a no-load asset allocation mutual fund targeted to retirement goals and let professional portfolio managers make the market-timing decisions.

For sole proprietors, SEP accounts offer the same advantages as for employees. Sole proprietor SEP accounts can be a great vehicle for individual investment savings with the option for a business expense deduction. Sole proprietor SEP contributions can be subject to their own limitations, so extra research and planning may be required. 

Internal Revenue Service. " 2024 Limitations Adjusted as Provided in Section 415(d), etc. ," Page 1.

Internal Revenue Service. " Simplified Employee Pension Plan (SEP) ."

Internal Revenue Service. " 401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000 ."

Internal Revenue Service. " SEP Plan FAQs ,"

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Michael J. Francis: Planning to retire soon? Here's advice on how to plan for investment income.

As the long-awaited day of retirement approaches, most people will need an investment strategy to generate income to cover living expenses. Peace of mind comes from knowing you’ve put a plan in place that will provide financial security throughout your retirement years. Let’s briefly explore the pros and cons of two of the more popular investment strategies for generating retirement income.

Two primary investment risks to consider

Planning for retirement income requires careful consideration of the risks soon-to-be-retirees face. While Social Security provides a foundational pillar of retirement income, for most it falls well short of covering the entirety of expected expenses. This means most retirees will need to come up with additional savings to invest for retirement income.

When investing for retirement income, there are two primary risks that come into play: longevity risk, and inflation risk. Longevity risk is the risk of outliving your retirement savings, and inflation risk is the risk of a dramatic increase in the cost of living overcoming your ability to maintain your standard of living. Not surprisingly, there are a number of investment alternatives well suited to overcome these challenges. Today we’ll consider two of the most popular.

Immediate fixed annuities: Take advantage of higher interest rates

An immediate fixed annuity is a contract between you and an insurance company in which you agree to hand over a lump sum of money in exchange for guaranteed income. The income is fixed, paid monthly until your death, and is not affected by stock market volatility or fluctuations in interest rates. These features make this option ideal for those concerned about longevity risk.

The sharp rise in interest rates over the past 18 months has meaningfully increased the yield of immediate fixed annuities. According to Kelli Hueler, CEO of Hueler Companies, if a 65-year-old male had invested $100,000 in an immediate fixed annuity in 2020, he would’ve received $495 per month until death. Today, that same $100,000 invested in an immediate fixed annuity will pay a 65-year-old male $671 per month until death. That’s a 35% increase in retirement income.

The guaranteed income provided by immediate fixed annuities comes with its own risks because they lock in the current interest rates for your lifetime. A surge in inflation could lead to a cash flow crunch if too much of your retirement income is fixed. One strategy is to build a ladder of fixed annuities, meaning you invest $100,000 in an annuity today and another $100,000 a year or two later if rates continue to rise.

Balanced funds: Pursuing both income and inflation protection

While higher interest rates give immediate fixed annuities increased appeal, an alternate approach is to invest in a well-managed, low-cost balanced fund. Balanced funds invest in a combination of stocks and bonds and can allow retirees to meet their income needs while preserving a high probability of protection against inflation.

If you’re willing to accept the unpredictability of year-to-year market fluctuations, you’ll be facing what industry experts call “sequence of returns” risk. This is the risk of experiencing a significant loss early in your retirement journey which impacts your portfolio’s long-term income production. Despite this risk, this approach offers meaningful long-term advantages.

To put the appeal of balanced funds, and the risk-return tradeoff they represent in perspective, it’s reasonable to consider a scenario where a balanced fund generates an average long-term (i.e. multi-decade) annual return of around 8%, which is a conservative estimate for some of the best funds in this genre. In this scenario, a 65-year-old investor who puts $100,000 into a balanced fund, earns 8% per year, and withdraws 4% per year for income, could expect monthly payments averaging $638 over a hypothetical 30-year retirement period. Importantly, for the same investor who lives to the age of 95, there's the potential for over $300,000 to remain to offset any future inflation or pass on to heirs.

Choosing the path that fits your future

The use of immediate fixed annuities or balanced funds hinges on your individual goals, risk tolerance, and long-term financial aspirations. While immediate fixed annuities offer guaranteed income and protection against market volatility, the balanced fund approach aligns with those who seek to balance income needs with the desire to build wealth to protect against inflation or leave a legacy to their heirs. Some choose to combine the two strategies to cover longevity, inflation, and sequence of return risks. The ultimate decision should reflect your financial objectives as well as the legacy you wish to leave behind, embodying the balance of a secure present and a prosperous future for you and your loved ones.

Michael J. Francis, is president of Francis LLC, a registered investment adviser with offices in Brookfield and Minneapolis. Mike Francis can be reached at [email protected]. The information contained herein is provided for informational purposes only. Francis LLC does not offer personal tax or legal advice.

11 Smart Tactics for Building a Wealthy Retirement Faster

Deanna ritchie.

There is no singular recipe for building a wealthy retirement faster than your peers. If you talk to 1,000 millionaires, you’ll get 1,000 different suggestions.

However, when you drill down and look for the commonalities, there are usually a few things that stick out. And if you’re looking to increase the speed at which you build retirement wealth, you may want to listen up.

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The Power of Building Real Wealth

When you compare the United States to other countries around the world, we are an incredibly wealthy country . We earn more, per capita, than most other nations. However, wealth seems to be very unevenly distributed among people. While the one percenters are doing great, the majority of the population is either struggling or slowly building toward retirement.

Is it possible to build wealth faster as you look toward retirement?

According to the latest data available , the average savings for those under the age of 35 is $11,200, while the median is $3,324. For those in the 35-44 age bracket, average savings are $27,900 (with median savings of just $4,710). And while savings do start to increase for those in the 45-54 age bracket ($48,200 and $5,620, respectively) and the 55-64 group ($57,800 and $64,000), these numbers are a far cry from what most people would consider “wealth.”

While there’s no tangible number attached to the term “wealth,” most people would consider it to be an amount of money that allows you to feel comfortable and secure. For some people, it’s enough money to where you could retire today and not feel stressed. Over the years, having a seven-figure net worth has sort of been considered the minimum entry point into the world of the wealthy.

However, most financial planners would agree that one million dollars isn’t nearly enough to retire on — especially if you want to be comfortable.

11 Wealth-Building Tactics For a Strong Foundation

Building wealth is something that many people aspire to, but they often find it difficult to achieve. It can seem like a daunting task to accumulate significant amounts of money, especially when faced with the challenges of debt, limited income, and economic uncertainty.

However, there are many strategies and techniques that can help you build wealth faster and more efficiently, whether you’re just starting out or looking to boost your existing financial portfolio.

Here are a few tactics to consider implementing, so that you can take control of your financial future and achieve your goals.

1. Erase High-Interest Debt

Among the most important steps you can take towards building wealth and paving the way for retirement is to eliminate any high-interest debt that you may have. Credit card debt, personal loans, and other types of consumer debt can be major drains on your finances, as you may end up paying far more in interest charges than you initially borrowed. If you’re carrying a balance on a credit card or other debt with an interest rate above 10%, it’s usually a good idea to prioritize paying it off as quickly as possible.

There are several strategies you can use to tackle high-interest debt .

• One option is to prioritize paying off the highest interest rate debt first, while continuing to consistently make minimum payments on other balances. This is known as the “avalanche” method and can help you save money on interest charges over time.
• Another approach is the “snowball” method, which involves paying off the smallest balances first while making minimum payments on larger debts. This can help you build momentum and stay motivated as you pay off your debts one by one.

2. Budget Wisely

In addition to eliminating high-interest debt, another key step in building wealth is to create a budget that allows you to live within your means and save money. A budget can help you track your expenses, prioritize your spending, and avoid overspending in areas that aren’t aligned with your long-term financial goals.

To create a budget, start by calculating your monthly income and expenses. Then, identify areas where you can cut back on unnecessary expenses, such as dining out or subscriptions you don’t use. Consider setting specific savings goals, such as saving for a down payment on a house or building an emergency fund, and make sure to allocate a portion of your income towards these goals every month. By sticking to a budget and saving consistently, you can start to build wealth.

3. Start a Side Hustle

If you’re looking for ways to boost your income and accelerate your wealth-building journey, starting a side hustle can be a great option. A side hustle is any type of work you do outside of your primary job, such as freelancing, consulting, or selling products online. (It’s also something that you can take with you into retirement.)

There are many benefits to starting a side hustle, including the ability to earn extra income, develop new skills, and build your network. Additionally, many side hustles can be done on a flexible schedule, allowing you to work around your existing commitments. To get started, consider your skills and interests, and identify areas where you could offer services or products that people are willing to pay for. Some popular side hustles include pet-sitting, tutoring, web design, and e-commerce.

4. Trade Futures

If you’re interested in investing, futures trading can be an exciting and potentially lucrative option. Futures are contracts that allow you to buy or sell an underlying asset, such as commodities, currencies, or stocks, at a predetermined price and date in the future. Futures trading can be risky, as the price of the underlying asset can fluctuate wildly, but it can also offer high rewards for those who are successful.

To get started with futures trading , you’ll need to open a trading account with a brokerage firm that offers futures trading. You’ll also need to do your research and learn about the markets you’re interested in, as well as the factors that can influence price movements. Many traders use technical analysis, which involves analyzing price charts and using mathematical indicators to identify trends and entry and exit points.

It’s important to note that futures trading can be highly volatile, and there is always the risk of losing money. As such, it’s important to approach futures trading with caution and to only invest money that you can afford to lose. Additionally, it’s important to have a well-thought-out trading plan in place, including risk management strategies and clear entry and exit rules.

5. Invest in Real Estate

Investing in real estate is a powerful way to build wealth over time. Real estate investing can take many forms, from buying and renting out properties to flipping houses for a profit. Real estate can offer both passive incomes through rental income and capital appreciation over the long term.

To get started with real estate investing, you’ll need to do your research and identify opportunities that align with your goals and risk tolerance. Some popular real estate investment options include purchasing rental properties, getting involved with real estate crowdfunding, and investing in real estate investment trusts (REITs).

When investing in real estate, it’s important to understand the risks and rewards of each option as well as the local market conditions in the area where you’re investing. You’ll also need to have a solid understanding of the financials involved, including rental income, expenses, and financing options.

The great thing about real estate investments is that you can hold them in your portfolio throughout retirement and continue to reap the financial rewards.

6. Diversify With Cryptocurrency

Cryptocurrency has emerged as a new asset class in recent years, offering investors the potential for high returns but also significant risks. Cryptocurrencies are digital assets that use cryptography to secure and verify transactions on an immutable ledger. Bitcoin is the most well-known cryptocurrency, but there are thousands of others available, each with its own unique features and risks.

Investing in cryptocurrency can be a speculative and volatile option, as the price of cryptocurrencies can fluctuate wildly based on a range of factors. However, for those who are willing to take the risk, cryptocurrency can offer high potential returns and the opportunity to diversify their investment portfolio.

To invest in cryptocurrency , you’ll need to open an account with a cryptocurrency exchange, which will allow you to buy and sell cryptocurrencies. You’ll also need to do your research and understand the risks involved as well as the technical aspects of cryptocurrencies, such as wallets and blockchain technology.

7. Automate your Finances

One of the most effective ways to build wealth over time is to automate your finances , which can help you save money consistently and avoid overspending. Automating your finances involves setting up automatic payments and transfers for bills, savings, and investments. That way, thinking about them on a daily basis isn’t necessary.

To automate your finances, start by setting up automatic payments for bills, such as rent or mortgage payments, utility bills, and credit card bills. Then, set up automatic transfers to your savings and investment accounts, so that a portion of your income is automatically saved and invested each month.

If you automate your finances, you have the opportunity to avoid the temptation to overspend or skip savings contributions. Additionally, it will save you time and mental energy to automate your finances, as you don’t have to worry about manually making payments or transfers each month.

8. Maximize Your Retirement Contributions

Investing in tax-advantaged retirement accounts is an important part of building long-term wealth. By maximizing your retirement contributions, you can take advantage of tax benefits and compound interest to grow your savings over time.

If you have a 401(k) or similar employer-sponsored retirement plan, consider contributing the maximum amount allowed each year. For 2023 , the maximum contribution limit for a 401(k) is $22,500, with an additional catch-up contribution of $7,500 for those aged 50 or older.

If you don’t have a retirement plan sponsored by an employer, consider creating an individual retirement account (IRA). For 2023, the contribution limit for a traditional or Roth IRA is $6,500, with an additional catch-up contribution of $1,000 for those aged 50 or older.

By maximizing your retirement contributions, you can build a significant nest egg for your future while reducing your tax liability.

9. Diversify Your Investments

Diversification is a key principle of investing, as it helps to spread your risk across a variety of different assets and investments. By diversifying your investments , you can reduce your exposure to any one particular asset class or investment, which can help to protect your portfolio in the event of a downturn in the market.

To diversify your investments, consider investing in a mix of stocks, bonds, real estate, and alternative assets such as commodities or cryptocurrencies. Within each asset class, you can also diversify further by investing in a range of different companies or properties, rather than putting all your money into one single investment.

While diversification can’t eliminate all investment risk, it can help to mitigate risk and increase the likelihood of long-term growth.

10. Focus on Increasing Your Income

While reducing expenses and saving money is important, another way to build wealth faster is to focus on increasing your income. By earning more money, you can save and invest more, which can help to accelerate your wealth-building goals.

To increase your income, consider asking for a raise at work, taking on additional responsibilities, or looking for higher-paying job opportunities. You could also start a side business or freelance gig, which can generate additional income and potentially turn into a full-time career.

11. Consider Working With a Financial Adviser

If you’re serious about building wealth, consider working with a financial adviser who can help you develop a personalized financial plan , identify investment opportunities, and navigate complex financial decisions.

A financial adviser can offer valuable insights and guidance on topics such as retirement planning, tax optimization, investment selection, and risk management. They can also provide accountability and help you stay on track with your financial goals.

When choosing a financial adviser, look for someone with relevant experience, certifications, and a track record of success. Meet with several advisers to find someone who you feel comfortable working with and who understands your unique financial situation and goals.

While working with a financial adviser comes with a cost, the potential benefits of having a professional on your side can outweigh the expense over the long term. By taking advantage of their expertise and guidance, you can build wealth more efficiently and confidently.

Ready, Set, Build Wealth

As you can see, there are plenty of different approaches to building a wealthy retirement as you begin to plan. By attacking it from all angles — including earning, saving, and investing — you can increase your chances of being able to achieve your version of financial freedom. Now…buckle down and get to work!

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The Motley Fool

Social Security Changes Are Coming in 2024: Here's the Good and the Bad

Posted: November 16, 2023 | Last updated: November 16, 2023

Millions of older adults rely on Social Security to make ends meet in retirement, and for some, benefits are their sole income source.

Changes to the program can affect how much you receive, however, so it's wise to stay updated on what's happening with Social Security. As we head into 2024, there will be some adjustments to watch out for. While some of them could increase your benefit amount, others are not quite so positive.

1. There's a new COLA for 2024

Most years, beneficiaries will receive a cost-of-living adjustment (COLA) to keep benefits keep up with inflation. In 2024, you can expect a 3.2% increase.

The downside is that that's much smaller than last year's whopping 8.7% raise. However, the positive is that because the COLA is based on inflation, a smaller adjustment means that costs have not increased as much compared to last year. So while you can expect only marginally larger checks in 2024, that also means everyday expenses are becoming more affordable.

2. The maximum benefit is going up

In 2024, the maximum you'll be able to receive from Social Security is $4,873 per month -- up from $4,555 per month this year. If you're able to reach those maximum payments, that means your annual benefit will be increasing by nearly $4,000 next year.

However, achieving those max payments is becoming more difficult. To earn as much as possible from Social Security, you'll need to have worked for at least 35 years, delay claiming until age 70, and consistently reach the wage cap -- which is the highest income subject to Social Security taxes.

The wage cap changes from year to year to account for inflation. It's $160,200 per year in 2023, and in 2024, it will increase to $168,600 per year. This is often the toughest requirement for workers to meet, and it's only getting more challenging every year that the income limit increases.

3. The earnings test limit is increasing

If you're continuing to work after taking Social Security, your benefits could be reduced or withheld entirely, depending on how much you're earning from your job. The earnings test limit determines how your income will affect your benefits, and these limits change annually.

There are two different limits, depending on whether you will or will not reach your full retirement age (FRA) in 2024. The good news is that they're both going up.

Data source: Social Security Administration. Table by author.

If you won't reach your FRA in 2024, your benefits will be reduced by $1 for every $2 you earn over $22,320 per year. If you will be reaching your FRA next year, you'll see a reduction of $1 for every $3 you earn above a different limit of $59,520 per year.

Because both of these limits are increasing next year, that means you'll be able to earn more before your benefits are reduced.

Also, keep in mind that these limits only apply when you're under your FRA. Once you reach your FRA, the Social Security Administration will recalculate your benefit amount to account for the money that was withheld, and your payments will no longer be reduced regardless of how much you're earning.

A new year brings new changes to Social Security, and now is the time to start thinking about how they'll affect your benefits. When you know what to expect heading into 2024, you can ensure you're ready for these changes once they take effect.

The $21,756 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $21,756 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies .

The Motley Fool has a disclosure policy .

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