Fast track your retirement investment plan

• Aim to enhance retirement savings through supplementary investments and managing lifestyle creep.
• Review key retirement accounts and the role they can play in your retirement plan: 401(k), HSA, IRA, Roth IRA, and traditional brokerage accounts.
• Find practical tips on how to balance current spending with investing for retirement.

Build a strong foundation with an employer sponsored retirement plan. These come in all shapes and sizes — think 401(k), 403(b), SIMPLE and SEPs. These plans may offer two key benefits:

• Beneficial tax treatment with high maximum contributions.
• Employer match that can act as instant investment returns. When it comes to investing, this may be the only “free lunch” out there.

If you are lucky enough to have access to these tools, consider making them the backbone of your retirement plan and maximize your annual contributions if you can.

And if you’re 50 or older, consider making catch-up contributions to your plan. These “bonus” contributions let you contribute more to your plan — over and above the annual IRS limit. Learn more about the catch up contributions.

To accelerate your retirement investments, consider employing additional accounts. Supplemental investments can act as powerful catalysts, propelling you towards your financial goals much faster. Here is a short list of options to consider:

• Individual Retirement Accounts: Like employer-sponsored plans, IRAs have favorable tax treatment in which investors can contribute either pre- or post-tax dollars towards retirement savings (traditional IRA vs. Roth IRA). The tax benefits are subject to income limitations, so be sure you check the amount you can contribute before investing.
• Health Savings Account (HSA): HSAs offer a unique combination of tax benefits and flexibility. Contributions are made with pre-tax dollars, the investments grow without being taxed, and withdrawals are tax free as long as they are for approved medical expenses. Post-retirement, an HSA becomes a flexible fund for various needs with medical costs still covered tax free and non-medical expenses taxed as income (similar to a traditional IRA).
• Brokerage Account: For unrestricted saving and investment opportunities, a traditional brokerage account is appropriate. Brokerage accounts have no contribution limits and you have complete freedom in your investment and withdrawal choices, albeit without the tax advantages of retirement accounts. These accounts are offered with a large variety of features and support structures and an equally wide range of fee structures. Thankfully, no transaction fee accounts have become quite common, making it easier to keep costs down.

Which investment account is right for you?

Setting up a plan for retirement and opening the appropriate investment accounts is only part of the equation. Like most long-term goals, consistency is key, which includes contributions to your investments. As your income grows, so does the temptation to increase your spending. This “lifestyle creep” can erode your retirement savings. The key to financial discipline is living within a set budget even as your income grows.

While impulsive spending can derail your plan, budgeting for fun activities can help keep you on track. Find a balance between saving for the future and enjoying life today to ensure you stick to a budget for the long term. A common way to divide income is the 50/30/20 rule: 50% for necessities, 30% for wants, and 20% for savings.

The 50/30/20 approach allows you to invest in both your current happiness and your future security. Automating the transfer from savings to investments can also help keep your financial goals on track and help you avoid succumbing to impulsive spending.

When investing for retirement, there is no one size fits all. Investors with decades until retirement have the opportunity to take more risk and can focus on growth as they have a longer time horizon to make up for any near-term declines. Meanwhile, investors approaching retirement often need to balance growth with managing risk; for many investors, this can mean increasing their exposure to fixed-income and decreasing equity exposures as they get closer to retirement.

Target date ETFs are one way to streamline your retirement plan by allowing experienced professionals to determine the appropriate investment mix based on the time to retirement.

Selecting your own investments? Don’t overlook the importance of diversifying the mix of stocks and bonds to match your risk appetite.

Traditional 401(k)s and IRAs allow investors to defer taxes until the money is withdrawn from the account. This makes it easier to contribute to your retirement account and helps the assets grow over time. A Roth 401(k) or Roth IRA allows an investor to contribute to an account with post tax dollars, meaning you pay taxes on the income when it is earned but do not owe any taxes as the investments grow or when they are withdrawn. As an added bonus, Roth accounts do not have minimum withdrawals which means the account can continue growing tax-free for as long as you live, providing the potential for greater long-term compounded growth which makes it a great option for those expecting to invest for a long period of time or expecting their taxes will be higher in the future when the investments are withdrawn.