My husband’s job offers a match with their 401(k) so we made sure to max his contributions to take advantage of this wonderful benefit.
The downside is the 401(k) has limited options, so we choose a few solid funds.
With the Roth IRAs, we have a bit more freedom so we are able to get the accounts to our desired asset allocation.
In general, I based mine on David Swensen’s model. The general asset allocation Swensen recommends includes:
Domestic Equity (30 percent)
Real Estate Investment Trusts (20 percent)
Foreign Developed Equity (15 percent)
U.S. Treasury Notes and Bonds (15 percent)
Emerging Market Equity (5 percent)
U.S. Treasury Inflation-Protection Securities (TIPS) (15 percent)
Since I have decades before I expect to draw money from this account, I don’t really have much in the way of bonds and the more conservative investments so I have a bit more in foreign developed equity than in treasury bonds.
Using Vanguard and Betterment
I’ve written the process of open an IRA with both Betterment and Vanguard so if you are thinking about using either please check out my reviews.
Both of these companies suit our personalities and allow us to painlessly sock away money.
I highly recommend both companies as we’ve been happy with both their services. So far we haven’t had any problems, which has made investing that much easier.
Betterment is great for my husband as everything is automated for him, including rebalancing his portfolio.
For those just starting out or with low balances, you may want to try Betterment as most of Vanguards fund have a minimum of $3,000 (the big exception are their target funds).
I love Vanguard because they have numerous funds that have low fees, meaning more of your money goes towards growing for your benefit.
They also are considered the leader in their field, offering a ton of resources and research on investing.
Either one you choose, you can easily grow your portfolio by signing up for automated contributions.
If you’re interested, you can sign up for a new account at Betterment * here or Vanguard here. It will probably take you 20 minutes to set up and open.
Thoughts on Setting Up Your Retirement Portfolio
What works for us may not be your cup of tea so I’d like to know – how you two manage your retirement accounts?
How did you set them up? What companies do you use? How often do you check your accounts?
The only exception I would consider to that general rule is to put in enough to money in to get your company’s match. It’s doubling your contributions.
Where Should Our Money Go?
Assuming that you’ve gotten out of high interest debt, you may now want to go ahead and optimize your money.
We searched to find some answers. Some financial gurus encourage the following process to maximize your retirement contributions.
401(k) up to the employer’s match
Roth IRA up to the year contribution limit
Rest into 401(k)
401(k) Contributions – How Much?
Start small if you’re cautious and decide what will work well with your budget. Some financial experts suggest put 5- 10% of your paycheck into a retirement account.
You can always increase the amount as you make more money.
When I made it a year into my internship, I called the human Resource Department to get started with the company’s 401(k) plan. I was fortunate that I qualified to participate and I wanted to take advantage of it.
If you don’t qualify for a 401(k) at work, though, you can still open an IRA. Opening an IRA isn’t hard at all and it can be a huge benefit for you.
You have to decide if you want to open a Roth IRA or a traditional IRA.
Roth IRA vs Traditional IRA- Which is Better?
The main difference between the two IRAs has to do with when you’ll be taxed:
Roth IRA – contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals are usually tax-free.
Traditional IRA – contributions are often tax-deductible (often simplified as “money is deposited before tax” or “contributions are made with pre-tax assets”), all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income.
Right now you can contribute $5,500/year to a Roth IRA if your modified AGI is:
$178,000 for married filing jointly or qualifying widow(er),
$112,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year, and
$10,000 for married filing separately and you lived with your spouse at any time during the year.