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Our second question of the month comes from Angela from California:
Hi Andy,
I’m enjoying your podcast and wanted to ask you a question as I’m starting to get into more aggressively saving for my retirement.
I’m 32 years old. I recently modified my contributions to my workplace 401k so I’ll be maxing it out at $18,500 this year. I recently paid off my last student loan and had extra money. My husband is matching his 401k too after a little convincing. So we’re really getting serious about our retirement savings now. Both our companies match so that’s another perk.
I do feel like I’m behind overall though. Where else should we consider investing outside of our 401k?
Any feedback you have would be great.
Angela
First things first, way to go on the retirement savings commitment! You and your husband are now saving a boatload of cash for your future.
You've done two amazing things here:
- Taken Advantage of Automation: You're now automatically contributing to your retirement each month and making the process simple and easy for you.
- Avoiding Lifestyle Inflation: Instead of upgrading your car, your wardrobe and your car, you're keeping an excellent saving rate going and avoiding the consumerism trap. Way to go!
As for your question, there are tons of investment options you can choose from outside of your 401k.
Let's review 5 that might make sense for your situation:
1. Roth IRA
It sounds like you and your husband are both working and making good money. If your income is below the limit for a Roth IRA, you can invest up to $5,500 per person in 2018 and $6,000 per person in 2019.
If you're close to the Roth IRA limits, realize that with your 401k contributions that lowers your adjusted gross income by $37,000 so a Roth may still be in your range.
If you’re above those Roth income limits, take a look at a Traditional IRA instead. It's another great avenue for retirement savings.
2. Health Savings Account (HSA)
Another great option to consider for investing for the future is a Health Savings Account (HSA).
A Health Savings Account (HSA) is just that. It’s a savings account designed specifically for health care expenses. Costs like doctor’s fees, prescription medications, dental treatments and even contact lenses can be covered under an HSA.
You must be signed up for a High Deductible Health Plan (HDHP) in order to participate though.
Angela, are you in an HDHP right now? Or do you or your husband have the option to sign up for an HDHP?
Consider it. Typically you’ll have much lower premiums but your deductible is much higher. If you have a sizable emergency fund, you should able to easily cover the higher deductible.
It’s not just a savings account. You can invest the money too!Also, your investments grow tax-free.
Check out Lively for your HSA partner. They have a modern, slick and no-fee platform that makes the process easy.
3. Save up for a Down payment on a Home
If you’re not a homeowner already, consider saving up extra cash for a down payment on a home.
With you living in California, real estate may be tough to buy right now, but perhaps you could save up for a little while with your great income and it’ll be a reality sooner than later.
I like the idea of putting 25% down so you’re not drowning in mortgage payments, but that’s just me. You do what’s right for your situation.
Related Article: 5 Ways to Avoid Becoming House Rich and Cash Poor
4. Taxable Brokerage
Once you’ve maxed out the tax-advantaged accounts like the 401k, IRA and HSA, you can look at a taxable brokerage for some good old-fashioned investing.
I dig Vanguard for its broad array of low costs funds. Also, a lot of the millionaires I’ve spoken to like Vanguard so I’m pretty much just following the millionaires.
Fidelity is also a great company that is getting very competitive with Vanguard for super low fee funds. In fact, they recently released a series of no-fee index funds.
With competition, the consumer wins my friends! Check out either one of those partners and you’ll be golden.
5. 529 College Savings for Kids
College isn’t getting any cheaper.
If you have kids, consider opening a 529 college savings account. You can start one up as soon as they have a social security number. That’s what we did for our kids and the investments have done well.
If kids aren’t in the picture yet, don’t even think about this one. Focus on you and your husband.
I hope those 5 investment ideas get your thoughts churning, Angela.
What other investment avenues should Angela consider?
Please let me know in the comments below.
