6 in 10 Americans aren't saving for retirement—here's where to get started

Most Americans are saving at least some of their money. About 89% of adults put cash away on a regular basis, according to a recent survey conducted by The Harris Poll on behalf of NerdWallet.

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But not a lot of that money is making it into accounts designed for long-term goals. In fact, 6 in 10 Americans don’t have a retirement-specific account, per the survey. That number is even higher for millennial (66%) and Gen Z (73%) savers.

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If you’re among the cohort lacking a retirement account, just about every financial planner would tell you to get started as soon as possible. The sooner your start saving for retirement, the more time compounding interest has to work its magic on your portfolio.

But where to start? There are plenty of different ways to invest out there, including workplace retirement accounts, individual retirement accounts, accounts designed for medical expenses and regular old brokerage accounts.

If you have money you’re aiming to put away for retirement, the “order of operations” in terms of where you invest depends on your specific goals and needs. Still, there are some general guidelines that financial pros typically prescribe when it comes to where you park your retirement savings.

Read on to find out where they say to put your money first.

Priority 1: Emergency savings

OK, it’s not actually a retirement account. But you need to make sure you have your bases covered before you start investing, financial pros say. That’s because you don’t want to be dipping into your retirement funds (which triggers a penalty in some cases) or going into debt when an unexpected expense crops up.

Most financial planners suggest saving three to six months’ worth of expenses in a high-yield savings account, but you don’t necessarily need to have all of that before you start investing.

“First, you need to make sure you have $1,000 in the bank in case of emergency,” says Christopher Lyman, a certified financial planner with Allied Financial Advisors in Newtown, Pennsylvania. Then you can start investing while simultaneously building your emergency savings.

Priority 2: Get your ‘free money’ with a workplace account

If your employer matches up to a certain percentage that you contribute to a workplace retirement account, such as a 401(k), investing enough to get that contribution should be your top priority, financial pros say. “It truly is free money,” says Kevin Brady, a CFP and vice president at Wealthspire Advisors in New York City.

Whether you select a traditional 401(k) or Roth version (offered by about 9 in 10 employers), you’re getting a tax break on your retirement savings. Contributions to traditional accounts lower your taxable income in the year you make them. In exchange for this upfront tax break, you’ll owe income tax when you withdraw the money in retirement.

Roth accounts work the opposite way. You fund these accounts with money you’ve paid taxes on. But once you’re 59½ and have held the account for at least five years, you can withdraw your contributions and earnings tax-free.

Which type of account is right for you depends on your tax situation as well as personal preference. Generally, Roth contributions are thought to benefit early-career workers. If you earn a lower salary, the thinking goes, it’s worth it to pay the tax upfront while you’re in a lower tax bracket and withdraw tax-free in retirement when you’re (hopefully) bringing in more.

Priority 3: Get triple tax savings with an HSA

Not every retirement saver can invest using a health savings account. These savings vehicles are only available to those enrolled in high-deductible health plans, a type of insurance with a deductible (the amount you must pay out of pocket before the insurer begins covering costs) of at least $1,500 for self-only coverage and $3,000 for family coverage.

If you’re eligible, consider stashing as much cash as you can in an HSA, which comes with a unique triple tax advantage. Like a traditional 401(k), money you contribute to an HSA counts against your taxable income. Any investments you make in the account grow tax-free, and once you withdraw the money, provided you put it toward a qualified medical expense, you won’t pay tax on it then either.

This strategy requires some planning and discipline. Namely, that you’ll have to pay for medical expenses out-of-pocket in order to let your HSA contributions accumulate and grow over time. In 2023, you can contribute up to $3,850 for an individual and $7,750 for a family to an HSA, plus an extra $1,000 if you’re over 55.

Priority 4: Build your 401(k) or IRA

Once you’ve gotten your employer match and funded your HSA, if you have one, investing pros say you’d generally be wise to turn back to your 401(k).

“A 401(k) is the best place to save tax-efficiently, because you can save the most — up to $30,000 annually for those with a catch-up,” says Amy Miller, a CFP and senior vice president at Wealthspire Advisors in West Hartford, Connecticut.

The 401(k) contribution limit for 2023 is $22,500, plus an extra $7,500 for savers age 50 or older, bringing the grand total to $30,000.

For some investors, though, a 401(k) may not be the best option. Maybe your plan offers a menu of high-priced, poorly performing mutual funds, charges sky-high management fees or you want a Roth option, and your employer only has a traditional 401(k).

In that case, consider investing in an individual retirement account. Like 401(k)s, IRAs come in traditional and Roth varieties that carry the same tax advantages. Unlike a 401(k), though, you open an IRA account yourself through an online brokerage and use it to buy any type of investment, including stocks, bonds and financial planners’ investment of choice: low-cost mutual funds and exchange-traded funds.

In 2023, you can contribute up to $6,500 to an IRA, or $7,500 if you’re 50 or older. The amount you can contribute to a Roth IRA begins to phase out if you earn more than $138,000 as a single filer or $218,000 a married couple filing jointly.

Priority 5: Stash the rest in a taxable brokerage account

If you’ve maxed out all of your other options for retirement savings, congrats — you’ve been able to sock an awful lot of money away. If you’re determined to keep investing, start putting money into a regular brokerage account, financial pros say.

“If at this point you can still save even more, then a non-qualified brokerage account invested in low-cost, tax-efficient ETFs or index funds is going to be the right choice for most people,” says Brandon Gibson, a CFP and founder of Gibson Wealth Management in Dallas, Texas.

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