I know, a millennial talking about retirement—in this economy? I must be a fool to think I could ever retire at some point in the future. Will there even be a world when I retire? If there is, will there be enough Social Security left for me and the other elder millennials when our bodies are falling apart? (Who am I kidding? My body is already falling apart!)
Let’s talk logistics here: If you work at a company with an employer-sponsored retirement plan in place, you probably have either a 401(k), a 403(b) or a 457(b). Apparently, whoever came up with the numbers for these things thought they would be easily distinguishable, but let’s be honest, they all look like the same thing. Thankfully, that’s because they are similar vessels for your retirement savings with different labels on them.
If we think of the 401(k) as the generic version of an employer-sponsored retirement plan, the 403(b) is the version for nonprofit employers, charities and other public education organizations, and the 457(b) is for local government employees.
At AAII, we have a Vanguard 403(b) plan account that is eligible for employer-matched contributions after two years. When my two-year anniversary at AAII came around, I was faced with the decision of which Vanguard mutual funds to invest my future in. I recall reading very helpful commentary from our editor Charles Rotblut about his own Vanguard retirement account, and I looked for similar funds that would give me the proper diversification. (Remember the lessons Daniel Crosby and Michele Cagan shared on diversification?)
My 403(b) is currently invested in five mutual funds: the Vanguard 500 Index Admiral fund (VFIAX), the Vanguard FTSE All-World ex-US Small-Cap Index Admiral fund (VFSAX), the Vanguard Growth and Income Admiral fund (VGIAX), the Vanguard Mid-Cap Index Admiral fund (VIMAX) and the Vanguard Real Estate Index Admiral fund (VGSLX). But picking the funds was just the first piece of the puzzle.
Next, I had to determine the weight I wanted to give each of these funds. Following guidance from AAII, I chose to allocate 30% of my retirement plan to the large-capitalization asset class (this just means big stocks) via the Vanguard 500 Index Admiral fund, 20% to mid caps (medium-size stocks), 20% to small caps (the little guys), 20% to growth investments (they’re supposed to grow I guess!) and 10% to real estate (just for fun).
Here’s a breakdown of the funds and their weights:
Though there is money in my retirement account, I haven’t properly set up my pretax paycheck contributions. Up until now, I wasn’t able to afford the contributions. Everyone and their mother have told me I need to “max them out,” but this might not be possible for some young people just starting their retirement contributions.
So how much should I be contributing to my retirement account?
AAII matches up to 3% of my retirement contributions, so let’s start with 3% and see how that will affect my monthly income. Three percent of my biweekly paycheck comes out to $43.33, leaving me with about $1,400 per paycheck. This seems like a reasonable place to start. And when inflation takes a break, I can increase this percentage to make the most of my future money.
There’s so much more about retirement accounts that I have to learn, including how the taxes work, so stay tuned for more of my investing discoveries!