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Investing Basics: How to Save for Retirement

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

A successful retirement plan is like the moon — always present and requiring lots of thought to reach. Unfortunately, many Americans today appear woefully unprepared to save enough money to enjoy any sort of retirement worthy of the name, with a recent Fed report finding 25% of non-retirees lack any sort of savings at all.

We can’t promise to lay out a detailed blueprint for how to reach your retirement (or the moon), but we can tell you how to get past the toughest part — knowing how to get started.

Let’s address these points one by one so you have a good idea of where to start your retirement journey.

Figure out how much you need to save

How much will you spend every year in retirement?

Unless you’re writing an episode of “Lost,” you need to start at the beginning, and in the case of saving for retirement, that means knowing how much you need to save. This number will serve as the finish line for your race to retirement, but keep in mind that it will be a rough estimate.

In the simplest terms, you’re trying to figure out how much money you need to live a comfortable lifestyle — which is up to you to define — until you die. Your first step should be to estimate how much income you’ll need for every year in retirement. There’s plenty of online worksheets and calculators that prompt you with questions to start thinking about your future expenses. Some basics include:

  • Health care costs, including medication and insurance
  • Housing
  • Food and entertainment
  • Transportation

This may sound overwhelming, but one shortcut you can take is to calculate all of your annual expenses now and make an educated guess on how those numbers will change when you reach 65 years old. Keep in mind, you may spend less on certain things, like transportation and entertainment, but more on others, like health care.

Calculating your ultimate nest egg goal

Now that you have a decent estimate of how much income you’ll need each year to sustain your laid-back retirement lifestyle, you can use that number to calculate your final savings goal. There are several theories on how to think about this, but one of the most popular is:

The 25x rule: The idea here is that you need to have 25 times your annual retirement expenses saved away in investments accounts before you can tell your boss what you really think of him. Each year, you withdraw roughly 4% from your savings — accounting for inflation from that first year you withdraw. According to a study by a team of professors from Trinity University, a nest egg built on this basis should last you at least 30 years.

As an example, assume you calculate your yearly expenses in retirement at $70,000. That means you’ll need to have saved $1.75 million in your accounts before you can make that first 4% withdrawal. Even a more modest income of $50,000 —which is close to the average expenditures of households headed by those 65 years or older, according to the latest data from the U.S. Bureau Statistics — requires amassing $1.25 million.

How much should you save every year?

Given the considerable size of the nest egg you’ll have to build up, the importance of sticking to a savings plan cannot be overstated. Again, the key here is not to feel overwhelmed and surrender to paralysis.

“Set your goal and write it down,” said Leon C. LaBrecque, CFP based in Michigan. LaBrecque recommends it’s a specific and achievable goal, such as 18% of your year’s gross income, and advises that you shouldn’t worry if you need to build up to that goal over time.

Putting away 18% of your gross annual income may sound like an unbearable and unsustainable sacrifice, especially if you have student loan debts, a mortgage and other pressing expenses. The beauty of calculating how much money you need to save overall is that you can pace the rate of your savings — within reason. Unless you expect a seven-figure windfall on your 60th birthday, you don’t want to put off aggressively saving for too long.

Fortunately, you have plenty of tools available to help you reach your savings goals, which we’ll look at below.

Max-out your retirement accounts

A recent Stanford study found approximately half of all workers in the United States qualify for some sort of employer-sponsored retirement savings account. The most well-known and prevalent of these plans is the 401(k), which allows employees to put a portion of their paycheck in a tax-deferred account. That means the money in your 401(k) is placed there before taxes and remains safe from the IRS until you start withdrawing funds from the account in retirement.

Many employers pledge to match whatever contribution you make to your 401(k) as part of their benefits package. The exact method and amount depends on the individual employer. You want to take advantage of the employer match and push it to the policy’s limits, otherwise you’re just leaving money on the table. “At least maximize the match, but more is always better,” said Kenneth B. Waltzer a CFP based in Los Angeles.

Waltzer also suggested younger savers look into choosing a Roth 401(k) if the employer provides that option. The main difference between a traditional 401(k) and a Roth 401(k) is that with the Roth option, the money you contribute is taxed before it goes into the account, instead of when you take your withdrawals.

What’s the difference for younger savers? Chances are your income places you in a lower tax bracket as a 20 year old than when you’re 50, reducing your total tax payments.

Open up your own IRA

Regardless of whether your job offers you a 401(k) account or not, you should also set up your own tax-advantaged retirement account. Individual Retirement Accounts (IRAs) come in all different shapes and sizes, meaning no matter what your employment or economic situation, you’ll likely find one to suit your needs. The two most common IRAs are:

  • Traditional IRA: The vanilla ice cream of retirement accounts, this IRA works a lot like a traditional 401(k). The money you place in a Traditional IRA remains sheltered from taxes until you begin withdrawing your money. You can begin withdrawals without paying a penalty at age 59 ½ . There’s an annual cap to how much you can contribute to any IRA, with Traditional IRAs maxing out at $6,000 (or $7,000 if you are 50 or older).
  • Roth IRA: As you may have guessed from reading about 401(k)s, money placed into a Roth IRA is taxed at your current income bracket. However, when you make your withdrawals, the money is tax-free. Younger people who believe they’ll pay more taxes in the future should choose this type of IRA over the traditional version. The contribution limit is $6,000 a year ($7,000 if you’re 50 or older).

Contribution rules unique to Roth IRAs

Unlike a Traditional IRA that allows you to contribute up to the limit without any restrictions, Roth IRA contributions are governed by your modified adjusted gross income (MAGI). The more you earn, the less the government allows you to contribute to your Roth IRA, eventually barring you from contributing anything. This begins to kick in when your MAGI is around $122,000 (if you file as single) or $193,000 (if you file as married jointly).

Prioritize the right investments for your age

Your 401(k) and IRA accounts don’t just magically grow your money for you. They serve as a tax-advantaged shelter for the earnings from your investments, and what you choose to invest in can make or break your retirement savings plan.

“In the beginning, what you save means the most, so focus on saving as much as you can and don’t worry about markets or research,” said LaBrecque. “As you approach retirement, preservation [of your savings] become critical.”

In other words, allocate your investment portfolio so it’s heavily weighted toward high-earning but more risky stocks when you are younger and can make up the financial hits you may take from the market.

“If you are age 30, you should have a good portion invested in equities, not all in bonds or cash,” said Joyce Streithorst, a CFP based in New York.

When you start injuring yourself in your sleep, that’s when you need to think about shifting your money into lower risk products since you don’t have an additional 40 years to save. Examples of these include:

Stick with the plan

This final piece of advice comes with a caveat, which is you need to remain flexible while still working toward your retirement goal. Events will crop up in your life that both help and hinder your plan, and you can’t let yourself either grow discouraged or overconfident. The most important action you can take is to keep plugging away at your savings, even if things look grim.

“Forget market timing. Forget hot stock tips,” said LaBrecque. “The key is to stay in the market. Missing the best 10 days in the S&P 500 over the last 20 years [would] cut your return in half. I’ve been doing this for 40 years and have always had some assets in the markets.”

You’ll also have to balance saving money for retirement with living your life. While some adherents of the FIRE movement may disagree, making yourself miserable for the sake of your retirement savings just makes you a slave to the future.

You are the most important part of the plan

The most crucial part of your retirement savings plan will be, well, you. Determining how much income you’ll need every year, how you can cut back on today’s expenses in order to save enough, how to invest and more depend on your lifestyle and current means. However, the above steps should provide you with a guide to getting started and bring you that much closer to reaching your work-free nirvana.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

James Ellis
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James Ellis is a writer at MagnifyMoney. You can email James here

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Investing

Great Financial Planning Networks for Millennials

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

The youngest millennials turn 24 in 2020, and most of this generation has already entered the workforce. Whether it’s to evaluate retirement plans or simply to start budgeting more effectively, many millennials are seeking out the help of a financial advisor.

Financial planning is a great way to improve the health of your personal finances. However, just grabbing the first financial planning professional you come across is not an effective option. You need to take thoughtful, deliberate steps to evaluate your options and choose the right advisor.

Check out our advice for pursuing your own search for a millennial money advisory that measures up to your own expectations. In addition, we’ve provided brief profiles of five financial planners tailored to the unique needs of millennials.

Millennial financial planning: How to find the right advisor

With a variety of financial planning services designed to appeal to their generation, millennial clients should explore their options before choosing an advisor. It’s important to find the person who will be a match for your unique personality and needs. The planner you choose to hire will depend on a variety of criteria, and before you sign on the dotted line, take these five steps to find the right fit.

Look for the CFP designation

When choosing an advisor, check if they’ve received a CFP designation. “This means the person has completed extensive education and experience requirements and are held to high ethical standards,” said Lindsay Martinez, certified financial planner with Xennial Planning in Oceanside, Calif.

CFP professionals have to pass a comprehensive certification that test their abilities to apply financial planning knowledge to real-life situations. The exam covers the financial planning process, tax planning, employee benefits and retirement planning, estate planning, investment management and insurance, to ensure the planner understands the complexities of the changing financial climate and know how to make recommendations in your best interest.

Get referrals, do background checks

Ask family, friends and professional colleagues if they use a financial planner and if they’re satisfied with their services. While your needs may vary depending on your life situation, it can help to hear about the experiences of others.

Whether your advisor candidates come from referrals or your own search, you should also do a background check on your advisors. The Financial Industry Regulatory Authority (FINRA) is not-for-profit industry group that oversees all entities in the United States that sell securities products. FINRA offers BrokerCheck, a website where you can research the background and experience of securities brokers and dealers.

Another place to find information is through the Securities and Exchange Commission (SEC). As it applies to the public, the mission of the SEC is to protect investors and maintain fair, orderly and efficient markets. The SEC helps you check an advisor’s background with search features on investor.gov.

If the financial planner claims to be a certified financial planner, take the extra step to verify their credentials by checking the CFP website. And you can also check for reviews of financial advisors at the Better Business Bureau.

Schedule a consultation

Don’t underestimate the importance of finding an advisor that fits your personality. An advisor may be smart and savvy, but if you don’t feel like they’re a partner who wants to take time to make sure you understand and feel good about your choices, the relationship could end badly.

Financial planning networks for millennials ditch the suit-and-tie meetings and offer a more relaxed way to interact and share ideas, via phone or web-based consultations.

“Since many planners provide complimentary getting-to-know-you-style consultations, take advantage of the offer to see whether they’re a good fit for you,” said Sarah L. Carlson, certified financial planner and founder of Fulcrum Financial Group in Spokane, Wash. “Do they talk to you or talk down to you? They need to speak in terms you understand.”

Carlson recommends looking for an advisor who has been in the business for at least five years. “Anyone who can pass the tests can come into the business,” she said. “Only advisors who are successful at helping people can stay in the business more than five years.”

Know the right questions to ask an advisor

Millennials should be asking the right questions, said Janice Cackowski, a certified financial planner with Providence Wealth Partners, in Rocky River, Ohio.

Cackowski suggests asking whether an advisor works with other people in your age bracket. Do they have account minimums or a minimum annual fee? How are they paid? Do they offer tax planning?

“In my opinion, [tax planning] is the most important part of planning for young people,” Cackowski said.

Kashif A. Ahmed, president of American Private Wealth in Bedford, Mass., adds two more questions: Is the planner a fiduciary? And can the planner be compensated by being paid for their time and advice instead of being required to purchase a product directly from them?

Advisors who are fiduciaries hold themselves to a standard where they put your financial interests above their own. “If they hesitate or say ‘no’ to either of these, run away,” Ahmed said.

Understand your advisor’s fee structure

Millennials are known to be impervious to sales pitches and are highly cognizant of hidden costs. They want to know exactly how much they’re paying and what they’re getting in return. For this reason, many find that they prefer a fee-only financial service. It’s important to understand the difference between fee-only and fee-based.

“‘Fee-only’ indicates the advisor does not sell products or work on commissions, so there are inherently fewer conflicts of interest,” said Martinez. “These folks have a fiduciary responsibility to act in their client’s best interest.”

Fee-based planners, however, collect money from clients as well as other sources, such as commissions from companies whose products they sell. Both fee-only and fee-based advisors can give a client investment and financial planning; however, the input you receive from a fee-based advisor might be different from a fee-only advisor due to how they get paid. In some cases, this can create a conflict of interest.

5 financial planning options for millennials

From networks to solo practitioners, financial planners designed specifically for millennials are making waves in the marketplace. These five financial planners and planning networks have business models geared to millennials. They offer digital platforms not tied to any one location, no minimum deposits and fee-only services.

XY Planning Network

XY Planning Network The  XY Planning Network includes more than 500 certified financial planners (CFPs) who specialize in financial planning for millennials. Advisors in the XY Planning Network are fee-only, which means they do not accept commissions, referral fees, or kickbacks. There are no minimums required to get started as a client.

These advisors offer comprehensive financial planning help, including debt management, estate, insurance and retirement planning, real estate analysis, and investment advice and management. Advisors are available to work with clients either in person or online.

Garrett Planning Network

Garrett Planning Network Garrett Planning Network is a network of nearly 300 financial planners who check many key boxes for millennials. Members charge for their services by the hour on a fee-only basis. It does not accept commissions, and clients pay only for the time spent working with their adviser.

Members of the Garrett Planning Network requires no income thresholds or investment account minimums to access its hourly services. Garrett Planning Network advisors help clients with cash flow issues, investment management questions, tax preparation, pensions and retirement plans, estate planning, insurance issues and savings opportunities. Members must either already have their CFP designation or agree to become certified within five years. Clients can set up an in-person meeting or work with a member by phone or online.

Millennial Wealth

Millennial Wealth Millennial Wealth is a small fee-only financial advising firm that specializes in planning and investing for millennials by millennials. Planners are not compensated with commissions or kickbacks. Located in Seattle, customers can also meet virtually via meeting software or other technology.

Millennial Wealth doesn’t have account minimums, and it has designed its fee structure to work primarily with young professionals just starting out and wanting to build a solid foundation to achieve financial goals.

Gen Y Planning

Gen Y Planning Gen Y Planning is run by certified financial planner Sophia Bera and specializes in clients in their 20s, 30s and 40s who have high incomes but haven’t had time to do proper financial planning. Gen Y Planning offers help and advice for the life stages millennials are likely facing, such as navigating new jobs, purchasing a first home, getting married and starting a family.

The team works with clients across the country online. Gen Y Planning offers fee-only services, with an up front planning fee followed by a monthly retainer. The CFP also offers a robo-advisor for investment advice as an add on service for 0.70% annual management fee. Gen Y Planning does not require account minimums.

Grow

Grow Grow is a millennial-owned service that focuses on serving other millennials. The company takes a holistic approach by offering solutions that improve its clients’ lives and finances with financial planning, investment management and personal growth coaching.

Grow is a fee-only advisor that receives no commissions. Clients do not have minimum account requirements, and Grow doesn’t charge a fee for managing assets under $10,000; instead the balance is left in cash or market ETFs until increases.

The bottom line on millennial financial planning

When you’re in your 20s or early 30s, long-term goals like retirement or purchasing a new home may feel far off. However, it’s never too soon to start working with a financial planner. When it comes to your money, take your time to find the right person to help you.

“I’ve found the millennials I work with to be hard-working and extremely conscientious about their finances,” Cackowski said. “They want to get set up to save appropriately and make better financial decisions than their parents’ generation.”

Finding a financial planner who can help meet all of your needs and work toward reaching your goals is an investment in yourself and your future. You want to hire someone who is not only knowledgeable; you want a coach and partner you can trust to grow along with you and your account balance.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Stephanie Vozza
Stephanie Vozza |

Stephanie Vozza is a writer at MagnifyMoney. You can email Stephanie here

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Investing

Thinkorswim Review 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Thinkorswim is a free trading platform available to TD Ameritrade customers. You must have a TD Ameritrade account to use thinkorswim, which is described as a “professional-level trading platform for serious traders.” It lives up to this promise, providing one of the most feature-rich trading platforms on the market, right up there with Interactive Brokers or TradeStation.

Users get a raft of premium features, including real-time data streaming, more than 400 technical studies and advanced charting tools. For this reason, thinkorswim can be complicated for those not used to navigating an advanced platform.

thinkorswim
Visit thinkorswimSecuredon thinkorswim’s secure site
The Bottom Line: A trading platform with everything a professional trader needs.

  • All TD Ameritrade customers can use thinkorswim for free.
  • Investors can use thinkorswim to trade a variety of assets, including options, futures and forex.
  • You can trade select securities 24 hours per day, five days per week (except holidays).

Who should consider thinkorswim?

If you’re a TD Ameritrade customer, consider using thinkorswim if you’re an active trader or you want to test out investing strategies risk-free. It’s available as a desktop platform or an app for iOS and Android devices.

If you don’t have an account with TD Ameritrade, it might be worth opening one to get access to this powerful trading platform, which includes its paperMoney stock market simulator. The simulator allows you to test trading strategies and monitor progress without putting real money at risk. Because no minimum deposit is required to open an account with TD Ameritrade and all account holders can access thinkorswim for no fee, you have little to lose by giving the platform a spin.

Although thinkorswim provides the data you want in an intuitive and easy-to-use platform, TD Ameritrade charges a high fee of $13.90 if you invest in commission-free exchange traded funds (ETFs) and don’t hold them for at least 30 days. If you’re a frequent ETF trader and want to make regular trades, you might pay more for the privilege through thinkorswim.

thinkorswim fees and features

Current promotions

Get up to $600 when you open and fund an account within 60 calendar days of account opening, depending on deposited amount.

Option trading fees
  • $0.00 / trade + $0.65 / contract
Stock trading fees
  • $0.00 per trade
Amount minimum to open account
  • $0
Tradable securities
  • Options
  • Stocks
  • ETFs
  • Mutual funds
  • Bonds
  • Futures / commodities
  • Forex
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $75 full account transfer fee
  • $0 partial account transfer fee
  • $0 inactivity fee
Commission-free ETFs offered
Mutual funds (no transaction fee) offered
Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • 529 Plan
  • Joint taxable
  • Rollover IRA
  • Coverdell Education Savings Account(ESA)
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • Custodial IRA
  • SEP IRA
  • Solo 401(k) (for small businesses)
  • SIMPLE IRA (Savings Incentive Match Plan for Employees)
  • Trust
  • Guardianship or Conservatorship
Ease of use
Mobile appiOS, Android
Customer supportPhone, 24/7 live support, Chat, Email, 364 branch locations
Research resources
  • Mutual fund reports

Trading commissions on thinkorswim

As with most online brokers, thinkorswim charges no trading commission for most services, including:

However, some fees are associated with thinkorswim. These include:

  • A $0.65 per contract fee for options trading
  • A $6.95 commission for trading stocks not listed on U.S. exchanges
  • A $25 fee for broker-assisted trades
  • A $5 fee for using the interactive voice-response phone system

Tradable asset classes on thinkorswim

Thinkorswim users can invest in a full array of investment products offered by TD Ameritrade. This includes:

  • U.S. and international stocks
  • Options
  • ETFs, including more than 2,300 commission-free funds
  • Futures
  • Forex

Trading tools on thinkorswim

All the data and charting tools an investor could hope for are available on thinkorswim. When analyzing markets, you’ll have access to more than 400,000 data points from the Federal Reserve. The accessible information covers six continents, which makes it easy to examine economic indicators from around the globe.

With so much data available, robust search features are essential, and thinkorswim delivers. Those who want to track data over time also can generate charts that include data points that span decades.

Traders also can make sure they never miss opportunities that all this data helps them to identify, because thinkorswim allows traders to set rules to trigger orders automatically. So, if you’re unavailable to enter a trade manually, you won’t miss out.

Trade 24 hours per day, 5 days per week

With thinkorswim‘s advanced charting tools and ample available data, investors might find trading opportunities outside of customary trading hours. Fortunately, thinkorswim makes that possible with 24/5 trading.

Thinkorswim’s 24/5 trading covers international markets as well as a list of securities in multiple sectors. Trades made outside of normal business hours become active immediately, which enables experienced investors to react to market moves immediately.

Investor education on thinkorswim

Because a TD Ameritrade account is required for access, thinkorswim users benefit from the robust educational resources that TD Ameritrade provides. This includes:

  • Real-time streaming of quotes
  • Financial news from third-party sources, such as CNBC, as well as market briefings that include commentary from in-house strategists
  • Courses on a wide range of subjects taught by investment coaches, which provide opportunities for new investors and seasoned traders to increase their knowledge
  • In-person educational seminars periodically throughout the year
  • More than 200 instructional videos and webcasts that appeal to investors at all levels

Strengths of thinkorswim

  • Professional level-trading tools, rich data sources: Thinkorswim provides access to advanced charting tools including visuals, Fibonacci tools, and a choice of 20 drawings. You also can use thinkorswim to analyze more than 400,000 economic data points and economic indicators across six continents, build algorithms through thinkScript. You even can access options statistics, such as the Sizzle Index, which allows you to compare current option volume with the five-day average.
  • Easy navigation and support: You can find the information you want quickly through a dedicated search engine. And if you run into trouble when you use the trading platform, a chat feature allows you to text with a trading specialist and even share your screen to get immediate assistance.
  • The paperMoney trading simulator: This stock market simulator is a great option for beginning traders and experienced investors who are more risk-averse and want to see real-world results before putting their hard-earned money to work.
  • 24/5 trading of a wide range of investments: You don’t have to limit your trading to standard market hours.

Drawbacks of thinkorswim

  • Expensive fees for active ETF traders: For traders who take advantage of commission-free ETFs, a $13.90 fee is charged if the fund is held for fewer than 30 days. This can make frequent ETF trading costly.
  • A steep learning curve: Mastering thinkorswim can be difficult for beginning investors who aren’t familiar with professional-level trading tools. A learning center is available, but it might take a lot of time to watch demos and read the training manual to learn how to navigate the platform.

Is thinkorswim safe?

Investing is never risk-free. When you buy stocks, ETFs or other investments, you assume the risk of losing money if the investments perform poorly.

However, the fact that thinkorswim is provided by TD Ameritrade should give you some peace of mind. TD Ameritrade has $1.3 trillion in assets under management and is a well-respected and well-established brokerage company.

TD Ameritrade is a member of the Federal Deposit Insurance Corp. (FDIC) and the Securities Investor Protection Corp. (SIPC), so cash that’s deposited into your account is federally insured against insolvency. And TD Ameritrade’s FINRA BrokerCheck listing attests to the fact that it’s in full compliance with regulatory requirements.

TD Ameritrade also aims to deliver the tightest security in the industry. It even promises to reimburse you for cash or shares lost from your account because of unauthorized activity that occurs through no fault of your own.

Final thoughts on thinkorswim

If you want a full-featured trading platform that provides round-the-clock trading, automatic orders and all the data you could want, thinkorswim is a great choice. The educational information and extensive data library alone make it well worth trying out this professional trading platform — particularly because it’s free to all TD Ameritrade customers.

Fees mentioned in the article are accurate as of the date of publishing.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Christy Rakoczy
Christy Rakoczy |

Christy Rakoczy is a writer at MagnifyMoney. You can email Christy here