Our country has a serious problem. One in three Americans have nothing saved for retirement, including 28% of baby boomers and 42% of millenials. But it’s not all bad news for those of us in our 20’s and 30’s, since we have many years to get caught up and make sure we don’t let our future selves down.

Building a retirement fund that will be enough to sustain a fulfilling retirement is not an easy task. And it hasn’t been made easier by either our employers or the government. The number of people working in the private sector with pension coverage has been cut in half over the last few decades. And though many state and local governments are looking to make it easier for people to save even if they don’t have access to a retirement plan at work, the US Senate recently killed a rule that would have made it easier for them to do so.

While planning for retirement may seem like a daunting task for most millennials, taking small but significant steps now and making and sticking to a plan can lead to a lot less stress in the future.

When making a plan, it’s important to figure out how much you can afford to start saving while still being able to meet your living expenses and other savings goals. For those of you starting to save for retirement while you are still in your 20’s or early 30’s, the generally recommended savings rate is 10-13% of your gross pay, including any employer match you may receive. While that may seem like a lot in the beginning, the most important thing to start is a routine of regular, monthly retirement contributions that can be slowly increased as it feels more comfortable.

“But how do I know how to start saving? There are so many options!”

There are a few main ways you might start saving for retirement, and the right method for you will depend on a variety of factors. You could start saving through a plan provided for you at work or on your own. Here are some of the main options you’ll be able to chose between.

• Through a 401(k) or 403(b): Named after the respective places in the tax code where the rules for these plans are outlined, you’ll encounter 401(k) and 403(b) plans at work, where they function in very similar ways. You’re allowed to deduct money directly from your paycheck (tax free!) to invest, and hopefully, your employer offers their own contribution or match as well. While 403(b) plans are only offered by non-profit employers, 401(k) plans may be offered by pretty much any employer. You’re not allowed to withdraw from the plan until you reach retirement age (59 1/2), except in certain conditions or by paying a steep penalty, and when you do, any money you withdraw will be taxed as if it was regular income.
• Through a traditional Independent Retirement Account (IRA): Individuals can set up IRA accounts on their own, through many banks and brokerage companies, and contributions are made directly by bank transfer or check. After putting money in an IRA, your contributions can be deducted from your income as you prepare your tax return. And like a 401(k), you’re restricted from accessing these funds until retirement, except for certain circumstances. There tend to be more investment options in IRA accounts than most 401(k) plans, though everything depends on your account custodian.
• Through a Roth IRA: The main difference between a Roth IRA and a traditional IRA is that contributions to a Roth IRA are not tax-deductible, but the principal and all investment income and growth can be withdrawn tax-free at retirement. There are also looser restrictions on accessing the funds before retirement. Roth IRAs can be a great choice for savers who are starting early and have many years to grow their investments. In many circumstances, Roth contributions may also be made into 401(k) and 403(b) plans sponsored by your employer.

Of course, there are a lot more rules and regulations governing the above retirement plan options and the many other, less common retirement plan options available (SIMPLE IRAs, SEP plans, 457s, etc). Before making a decision on what plan may be right for you, make sure you have the complete picture of the contribution limits, income restrictions, investment limitations and risks and legal protections involved in these plans.

Saving for retirement wasn’t always so fraught with the potential pitfalls it is now, but with proper planning, guidance, and the power of compound interest, a secure and comfortable retirement is still achievable.

Want to learn more about how you can work with Planning for Progress to start on the path to retirement savings and get objective, personalized financial advice? Schedule a free 30-minute introductory call today!