What is the best way to save for the future outside of a work retirement plan?
I am 27 years old and have finally worked myself into a well-paying job. I want to make the most of it by setting myself up for success down the road. I am currently investing into my thrift savings plan (TSP) once a month with the drill paycheck I receive for being in the National Guard and I also will be joining my company's retirement plan.
Other than these two methods of saving that I am currently contributing to, what is the best way for me to save for the future? I don't want to put all of my money into a standard savings account which will not grow much over time. Should I consider online savings accounts with higher interest rates? I am also intrigued by dollar-cost averaging. Should I consider index funds?
It sounds like you have a good handle on your retirement savings based on your contributions to both the TSP and your workplace plan, which is great. Assuming you are contributing at least 10% to 15% of your income, you are likely in a good place for your retirement. If you want to get greater detail on your retirement, meeting with a financial advisor can help you figure out if you are on track for your retirement and what the current savings should grow to by the time you retire.
Invest For Non-Retirement Goals
If you are on track for your retirement, you want to look at other future goals to determine what your next investment steps are. Unfortunately, many people invest solely for retirement, and then have to raid their retirement funds to achieve other life goals because they didn't keep enough flexibility for their money. Goals such as buying a house, starting a family, starting a business, or even taking a major vacation can all be accelerated through investing. Opening a normal (taxable) investing account will allow you to take the money out at any time, for any reason, and with no penalties.
You won't gain any tax advantages from an account like this, but you will gain a lot of flexibility. You can get tax advantages through the individual investments, such as using municipal bonds. But don’t focus on the tax advantages. Avoiding taxation should be a distant second to having the right investments to achieve your goal. You can open a taxable accounts through any brokerage companies, with an investment adviser, or directly with a mutual fund company.
Purposeful Strategic Partners also offers a Financial Launch program designed specifically for young professionals looking to improve their finances and accelerate wealth building.
Working With a Financial Advisor
A fee-only and fiduciary financial advisor can help you with all of this, and can also help you make sure your TSP and workplace plans are invested correctly. Keep in mind, some advisers will only give advice on money you invest through them; while other advisers (like myself) are willing look at all your investments and your entire financial plan even if you don't invest anything with them.
The TSP is one of the best retirement plans available, so question any advisor telling you to roll the money over to an IRA for them to manage. Having an advisor manage investments for you can be very beneficial, but there should be a compelling reason to roll money out of the TSP. Your 401(k) is another story, and you may be better off rolling over to an IRA depending on the fees and investment options in the 401(k).