What’s the Best Way to Save For Retirement?

Whether you’ve got FIRE on your mind or you’re taking a slow climb up the corporate ladder, the plan probably isn’t to work forever. Enter: A good retirement strategy. For a pro’s tips on how to plan for our “Golden Girls” era, we tapped Ashley Feinstein Gerstley, a certified financial planner and the founder of The Fiscal Femme, for her take on what to do to prep for retirement now.

Featured Expert: Ashley Feinstein Gerstley

Ashley Feinstein Gerstley - Certified financial planner, author, and founder of The Fiscal Femme

Should I put money into a pre-tax 401(k) or a Roth 401(k)?

With a Roth account, you pay taxes now. With a traditional (or pre-tax) account you pay taxes when you take the money out. In both accounts, the investments grow tax-free. “Fun” fact: If your tax rate now is the same as your tax rate when you retire, there is no tax difference between what you will owe with a Roth and traditional account. Cool, right? (Yes, I know. My sense of cool is quite warped.) Generally, if you think you’re in a lower tax bracket now than you will be when you plan to take the money out (ie, you think you’ll be earning more then), then it makes more sense to pay taxes now. Important caveat: This assumes tax rates look similar to what they are now when you retire, but we don’t actually know what they will be. Paying taxes now can avoid some tax risk in case taxes go up.

Do I need a 401(k) and an IRA?

You can have both, but you might not need to. Here are some examples of when it makes sense to have both:

• You want to contribute more than the 401(k) maximum contribution.

• You want to contribute to a Roth account, and your company doesn’t offer a Roth 401(k). 

• You have a 401(k) — or multiple 401(k)s — from previous employers. Hint: You can roll these over into an IRA. 

• Your 401(k) has lousy investment options or high fees. (Psst…you’ll want to max out your 401(k) matching first, then max out your contributions to your IRA.)

• You don’t have access to a 401(k) plan. In this case, you’ll want to contribute to an IRA.

Remember: You can rollover a 401(k) into an IRA at any time. 

Common mistakes to avoid when saving for retirement?

There are two big mistakes. The first is not getting started. When we know how much we need to save for retirement, it can be easy to just throw in the towel. You might think: “I can only contribute a little, so what’s the point?” I promise you, every little bit counts, and you’ll thank yourself later. If your company matches your 401(k) contributions, start by maximizing your match. If not, start with as little as 1%. Then I’m a fan of the sneaky sneak-up. Increase your contributions by 1% every six weeks to decrease the pain you feel. Next thing you know, you’re contributing so much more than you ever thought was possible.

The second mistake is leaving your money in cash or money market funds. Contributing to your retirement accounts is extremely important, but it’s only part of the plan. Once the money is in your account, you need to invest that money or it’s not going to grow. If you aren’t sure, go ahead and log in to your retirement accounts right now and check that your balance is invested and that your contributions are being invested. If they’re not, know that you’re not alone. It’s a lot more common than you might think, and it’s better to know now than 5, 10, or even 20 years down the road.

How often should I rebalance my 401(k)?

I recommend doing a more robust retirement check-in once per year. This includes checking in on your retirement goals, your progress towards those goals (think: do you need to up your contributions?), and your asset allocation (aka what your money is invested in).

This interview has been edited and condensed for clarity.