You shouldn't be "saving" for retirement.

Yes, that's right, you absolutely shouldn't be saving for retirement and here's why.

“How much should I be saving for retirement?”

You shouldn’t be saving for retirement.

You should be investing for retirement.

We use the wrong language here because it’s common to say “save for retirement” when really you are (or should be) “investing for retirement.” It’s an important distinction because you need to actually pick investments within your 401(k), IRA or 403(b) and don’t just let it sit in cash.

People don’t always realize you need to select investments when you set up a retirement account, or they get overwhelmed at the prospect, and money can end up sitting in cash for years and years.

Why does that matter?

Because it’s hard to save your way to a big financial goal that’s decades down the road compared to investing and having the stock market do some of the work for you!

While researching my second book, Broke Millennial Takes On Investing, one interviewee shared a horror story about a client who called the brokerage firm where she worked and asked about the balance of his retirement account. He was in his sixties and getting excited to retire. He’d been diligently contributing to his 401(k) for years and assumed all was well. The problem was that he never picked investments. His contributions had been sitting in cash for years. While he had a significant chunk of money in the account, it was nowhere near what he needed to comfortably retire nor what it could’ve been if he properly invested and took advantage of compound interest.

Fortunately, these days many companies will auto-enroll you into a target date fund if you don’t pick investments yourself, which is good because it’s at least not sitting in cash. However, the selected target date fund may not be the right selection for your goals and risk tolerance.

Translation timeout: Target Date Fund 

Target date funds (sometimes called life cycle funds or all-in-one funds) are designed to have your money invested in a way that’s appropriate for when you plan to retire. Investment professionals design these funds and select the investments to be more aggressive when you’re younger and transition to more moderate and then conservative as you age closer to retirement. You don’t have to be the one to select any of the investments within the fund. You only have to select the fund that’s correlated with the approximate year you’d want to retire. 

Most target funds are grouped in five-year increments, so if you want to retire in 2052, then you’d probably select one that is called Target Date Fund 2050. Brokerages might call them something unique, like Fidelity’s are known as Freedom Funds, so you’d find Freedom 2050 Fund. Vanguard’s similar fund is called Target retirement 2050. 

Target date funds get mixed reviews. The downside is that they’re a one-size-fits-all solution to a situation that should be highly personalized and curated to you, your financial goals, and your investment strategy. A common criticism is that target date funds might make your investments too conservative too early. Target date funds are usually actively managed, which means they have higher fees than index funds or ETFs which are passively managed. 

The pros of a target date fund is that it reduces the fear, decision fatigue and the overwhelming sensation of feeling like it’s entirely on you to figure out your financial future and one misstep could keep you from comfortably retiring. It ensures your money is invested. It isn’t a lifetime commitment if you select a target date fund and you can always switch up your investments later on as you learn more or if you hire a financial planner to help you.

How do you know if your money is invested?

See if the words “Cash” or “Settlement Account/Fund” are the name of where your money is sitting. The other way is to notice what’s happened to the money over the years. If it seems to be somewhat similar to the amount you’ve contributed in total, then it’s probably sitting in cash and not invested. You can always call customer service at your plan’s provider and ask someone if you’re at all confused.

Next week, we’ll discuss how to determine just how much you actually need to save invest for retirement.

Want more retirement help? I’ve got a workbook for you.

Preorder bonus offers

Limited Edition Offers Exclusively for Newsletter Subscribers

• First 25 people to send me proof of preordering can claim a signed bookplate to put in your copy of the Broke Millennial Workbook so it’s an autographed copy. (Only available for the US and Canadian residents due to mailing costs)

• First 150 people who preorder will be submitted into a lottery to win a 30-minute chat with me! 3 winners will be chosen. We can talk about whatever money questions are on your mind. ($500 value) 

• First 500 people who preorder will be submitted into a lottery to be upgraded to a paid subscriber* for a year and get the Friday newsletter and access to all archives. 5 winners will be chosen. ($60 value) *Only available to currently free subscribers. Current paid subscribers will get your own special bonus announced in a future newsletter.

How to claim your bonus

• Send proof of your preorder to info@brokemillennial.com. The lottery will be on a first come, first serve basis so act ASAP. I will do the drawing for winners on May 10, 2023 – the day after the book publishes and preorders are confirmed. 

Where you can preorder

Amazon • Bookshop.org •  Barnes & Nobles • Powell’s Indie Bound • Hudson Booksellers •  Books-A-Million • Your local bookstore • The library