MyTwoCents: 'I have about $40,000 in cash (I’m 32). I keep reading about how I should invest it for retirement, but I’m scared to do so.' CharlotteCowles responds
Photo-Illustration: The Cut: Photo: Getty Images I’ve been saving money bit by bit since my 20s, and now I have about $40,000 in cash . I keep reading about how I should invest it for retirement, but I’m scared to do so. I don’t know anything about investing, and it sounds mostly like gambling to me.
But in fact, the opposite is true. The only thing certain about keeping your long-term savings out of the market is that its value will dwindle over time. In 30 years, your $40,000 will be worth less than half of its current purchasing power, even if inflation stays at a modest 3 percent . That’s a huge risk to take with your money! But if you invest it properly, its growth will outpace inflation even by the most pessimistic estimates — a much less risky decision, objectively.
Three things can help you process this: education, exposure, and professional help. By learning more about investing , you’ll feel more confident about avoiding your parents’ mistakes. You might also consider meeting with a certified financial planner who specializes in clients with difficult financial histories and/or anxiety around money.
Now you have to decide how you’re going to invest it. Assuming your annual income is less than $144,000, then you qualify to open a Roth IRA, which is a specific type of retirement account for money you’ve already paid taxes on . This is a great place for you to start. The maximum amount of money that you can put in a Roth IRA this year, according to the IRS, is $6,000. Go for the max — you can afford it! That money will grow tax-free until you’re ready to take it out, ideally in retirement .
Another important consideration: Does your employer offer a 401 or similar retirement benefit? If so, you’ll want to start contributing to it directly from your paychecks, at least 10 percent of your salary, especially if there’s an employer match . This will keep your taxes lower and help prevent you from second-guessing yourself when you have the occasional panic about investing . You can select a target-date fund for that one, too.
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