A financial planner says the best way for most people to save for retirement is the same

Courtesy of Brian Face

Financial planner Brian Face says retirement plans are the only option to be able to actually retire someday.
For that reason, most people will find it easiest to save for retirement in a retirement account like a 401(k) — especially if they have an employer match — or an IRA.
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For most people, says financial planner Brian Face of Michigan-based Face 2 Face Planning, "retirement plans are the only option to be able to actually retire someday."

"My recommendation for most people is to start in their work retirement plan," he continues, which is usually a 401(k). Some employers offer a 401(k) match, where the company matches any contributions the employee makes, up to a given percentage of their paycheck. That’s a valuable benefit not to be missed. As Face says, "if a company matches the first 3% that you contribute, that is a 100% return on that 3% without the stock market even moving."

While a match makes a 401(k) especially appealing, there are other retirement accounts available, too. The most popular are a Traditional IRAs and Roth IRAs, both of which have a contribution limit of $6,000 in 2019 (Or $7,000 if you’re 50 or older). Roth IRAs also have an income limit for those who want to contribute, but the biggest difference between them is the tax treatment: Contributions to traditional IRAs are tax-deferred, meaning you pay taxes on distributions in the future, but not contributions now. Roth IRAs are the opposite: You pay taxes on your contributions up front, but you can take distributions in the future tax-free.

Face says "Roth IRAs are great because the money you put in has already been taxed, so it grows tax-free and can be taken out tax-free when you retire." He also highlights the fact that you can withdraw your contributions — not earnings — from a Roth IRA early without penalty, since you’ve already paid the taxes on it.

And don’t let yourself get too overwhelmed to start saving. "If not knowing what to invest in is holding you back, many plans offer a ‘target date’ option which is based on the year you plan to retire," Face says. For example, if you’re 25 now, in 2019, and you want to retire in 40 years, you could pick a "target date 2060" fund. The fund will automatically rebalance itself over time, investing in higher-yield but higher-risk options like stocks when you’re younger, and shifting towards more conservative investments as you get closer to retiring and needing to spend the money in the account. As Face says, "That type of fund works great if you want to set it and forget it."

To make the best plan for retirement, he recommends, "Always talk to your tax professional before you decide what is the best option for you."

The most important thing is that you pick an investment strategy and stick to it. "The market is much like life," Face says. "We all have our ups and downs, but our goal for investing — and life — is that we are moving forward and up."

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