How to Plan and Invest for Retirement Throughout Your Life—Even When It Feels Like You Have Other Financial Priorities

Each week on Real Simple's Money Confidential podcast, host Stephanie O'Connell Rodriguez works with a listener and a financial expert to address some of life's trickiest money challenges. This week, it's all about saving for retirement—and making your money work for you once it's saved.

This week's caller—we'll call her Claudia, though that's not her real name—is 33 years old and lives in Raleigh, N.C. with her husband. Claudia recently quit her full-time, salaried job to pursue her long-time dream of owning and operating a restaurant. When she and her husband dedicated their time (and their savings) to their business, she agreed that it was a financial risk—but also one she wanted to take. Even with her money tied up in the business, Claudia has retirement on her mind. At her mother's urging, she opened a Roth IRA for herself when she was 17, and while she hasn't been able to contribute to it consistently over the years, she knows it's there and would like to resume saving for her retirement in the future. She'd also like to invest more, to make the most of the money she has managed to save, but isn't sure where to begin.

To help Claudia find ways to continue saving for retirement and learn to invest so she can try to get her hard-earned money to work for her, O'Connell Rodriguez turns to Amanda Holden, an investing expert and founder of Invested Development, a program that seeks to educate women on investing for their futures.

First, Holden notes, it's important that people realize that the process of saving for retirement has shifted drastically for younger generations. While your parents or grandparents might have had a pension to see them through their later years, few employers offer a pension nowadays, choosing instead to offer a 401(k)—a tax-advantaged plan that puts the onus for preparing financially for retirement on the individual.

"A lot of millennials that I work with feel like retirement isn't even a possibility," Holden says. Still, she notes, it's important to try including saving for retirement within your overall savings or debt repayment strategies. "We may not even have the option to work forever," she says, referring to the belief many young people have that they'll just have to (or be able to) work for decades to come. About two-thirds of people don't get to retire on their own terms, Holden says, with things such as aging out of the workplace, not having the skills to stay competitive, health concerns, and more often forcing people to stop working before they're ready financially.

Check out this week's episode of Money Confidential—"The New Rules of Retirement"—for O'Connell Rodriguez and Holden's full conversation about saving and investing for retirement. Money Confidential is available on Apple podcasts, Amazon, Spotify, Stitcher, Player FM, or wherever you listen to your favorite podcasts.

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Transcript

Anne: I understand the importance of saving for retirement, but all of information on how to best be saving for it just can be confusing.

Elizabeth: My husband is self-employed with a lawn care company. He is very successful, but we need to know ways to save for retirement.

Willow: We just want to go into our 30s knowing that we're setting up ourselves to be able to maintain our lifestyle once we retire.

Stefanie O'Connell Rodriguez: This is Money Confidential, a podcast from Real Simple about our money stories, struggles and secrets. I'm your host, Stefanie O'Connell Rodriguez. And today we're talking to a 33-year-old, Raleigh, North Carolina-based listener we're calling Claudia.

Claudia: I recently left my full-time salaried position, at a wonderful company with great people to pursue a lifelong dream of owning and operating a restaurant. And what it's meant in terms of saving for retirement is I've just had to put that on pause actually for the time being.

Stefanie O'Connell Rodriguez: How do you balance saving for a retirement that's 10, 20, 30 plus years away against all of the financial goals and demands you have in the present? The truth is, the financial landscape has shifted a lot—with student loan debt continuing to rise, essential costs like housing and healthcare outpacing average wage increases and more and more Americans on a career path that doesn't follow a straight line from graduation to retirement with a steady paycheck, incremental raises, and generous employer benefits like access to a pension plan.

So with those changes, many of us are reenvisioning what retirement even means and what the quote unquote rules are for navigating this new reality—including today's listener, Claudia.

Can you tell me a little bit about what that word 'retirement' does mean to you?

Claudia: Oh, so many things. I think I'll always be the kind of person that has a project going on here or there, but, um, I would say first and foremost, peace, security is a big one, too. I don't know what that means at retirement age. I don't know what that world will necessarily look like, but definitely freedom and comfort.

Stefanie O'Connell Rodriguez: We think sometimes of retirement, I think, as things, when I asked you about retirement, you expressed a feeling. Do you think that's different from how your parents conceptualize retirement?

Claudia: I don't. My mom was, is still a very artistic and creative person, but did give up pursuing a career in an artistic field for something a little more business savvy so that she could feel a little more comfortable in her lifestyle. She ended up retiring a little bit earlier than she initially planned because life happens and she decided that comfort was actually more of a perspective than really an acclimation of items or dollars even. Not thinking, you know, like. 'Well, if only I had worked for five more years, what could I have done? Or this, that, or the other?' She, she is super appreciative of everything she has and her time she's like, 'I'm a time millionaire'.

Like she has so much time to invest in things that she is super passionate, like she is a piano player. So she plays piano every single day. Whereas before, when she was working, she barely had the energy to do that, right.

So I do see her thriving now in retirement, in a way I really didn't get to experience when she was a working single parent and was just like, you know, doing what you had to do to provide for her family.

Stefanie O'Connell Rodriguez: Is there a part of that that you think has shaped kind of your perspective on it?

Claudia: A hundred percent. My mom was sick actually in her later years, and was diagnosed with breast cancerand we got through that and we were good. And then there was like another little scare. And just like the day-to-day grind of this very, very draining job that she never super loved, but felt obligated to continue for, for a number of reasons. She just came to a point where she was like, this is not worth it.

And so you may have a job that pays you an amazing, super comfortable salary and affords you this great lifestyle. But if the cost of that is your physical health and your mental health and all of your time. That to me wouldn't be worth it.

Stefanie O'Connell Rodriguez: When did the idea of retirement and saving for retirement enter your mental picture around money?

Claudia: Honestly, it was high school. My mom brought up the topic right around the time when we were looking at planning for college. And encouraged me to open a Roth IRA, which I did at the age of 17 years old.

Stefanie O'Connell Rodriguez: Wow, that's Impressive.

Claudia: It really is and I have to credit my mom for that guidance because otherwise I would never, ever would have known.

I would've never even thought about retirement … maybe not even until today. It's not that there's a ton in there, even to this day, but it is something that has been on my radar ever since I could earn money.

Stefanie O'Connell Rodriguez: As much as Claudia values the freedom and flexibility that comes from saving and investing in the future, her career hasn't always made that possible.

Claudia: For the bulk of my twenties, I was an aspiring actor and singer, then turned sort of nonprofit fundraiser.

I could barely save at all. So I didn't necessarily contribute very much to that account. Then I made a career transition into sales, where I was making much more income and, uh, still living on a pretty frugal lifestyle.

So I was saving really, really heavily, probably like I would say thirty percent of my paycheck. I mean, when you really look at inflation and what the costs are to live, it's kind of staggering. It's like, oh my God, like, we're going to need a million dollars.

You know, if we want to be retired for 20 years. And so just like wrapping my head around those like cold, hard numbers helps you do math or at least that's how I, I reverse engineered it.

Stefanie O'Connell Rodriguez: Claudia's most recent career transition started in 2019, when she and her husband opened a restaurant in Raleigh, North Carolina.

Claudia: What it means for us financially right now is neither of us has really a reliable income at all.

The seat that we're in today, really is dependent on what is going on with the business. So we do need a little bit of liquidity in our savings to be able to like, you know, close the gaps with our life expenses.

Um, so it was a bit of a leap of faith, but we do have a financial plan in place. We know our monthly budget. We know what our minimum expenses are, and what it's meant in terms of saving for retirement is I've just had to put that on pause actually for the time being. So I won't be saving for retirement for at least the next six months.

If there's anything left over, certainly we can you know, like squirrel it away a little bit at a time. And then the contingency that we also decided on was, yeah, well, the restaurant industry is pretty risky. We're still in a pandemic. If everything crashes and burns, I'll go back to work.

You know, you want to make God laugh, show him your plans, right?

And since we have time on our side right now, I feel okay with the risk. Maybe if we were older, and we also don't have children, human children, we have animal children and a business baby, but we don't have human children. If we had human children that may have affected the ratio too, of how much risk I was willing to take.

Stefanie O'Connell Rodriguez: How do you think about balancing investing in yourself—like right now as a business owner, versus investing in yourself for like your future self—your retirement self?

Claudia: That is such a hard, tight rope to walk. I think for me, at the end of the day, I have taken a lot of bets on myself in the past and have made a lot of decisions in my life that others deemed risky and I didn't necessarily, and I landed on my feet every single time.

Yeah. It's concerning that I don't have any idea how much income our household is going to have this year. Like, that's scary. But I have faith. We will figure it out and make the decisions we need to make at the time, if something goes awry.

Stefanie O'Connell Rodriguez: If you were to say, like, I'm putting this money aside for retirement right now, where physically would that money go?

Claudia: The Roth IRA. I also would love to try my hand at investing actually in the, um, in some of these cool platforms I've read about. Even just like little bits at a time just to something that's like, not wouldn't break me or break my heart to lose, but just to get in the habit of it and to get more educated about the stock market.

I really don't know that much. Like, I just haven't really dipped my toe into that pool yet. And I do think that'd be really interesting.

Stefanie O'Connell Rodriguez: Within your retirement accounts actually do you know where your money is invested within those accounts?

Claudia: I could not tell you without looking at it. I can tell you it's a mix of stocks and bonds. But I can't tell you what those stocks and bonds are without logging in.

I feel like I have these like adult tasks on my Trello board in my brain. And, you know, I'm like when I get to it, I'll get to it. And learning about investing in a non-retirement account. It has been one of those things. I've been thinking about that for years and I have just not dipped into it cause I've been busy. I've been busy working full-time and helping my husband with the restaurant.

Stefanie O'Connell Rodriguez: For sure. Although, it's interesting that you don't identify the saving you've been doing in retirement as what it actually is, which is investing for retirement.

Claudia: I don't really have the capacity to think too in detail about it right now, but I know I'm moving in the right direction.

And then future me when she needs to know more, she'll spend time on it. And I mean, it just seems really overwhelming—going through stocks, picking the stocks. What if I make the wrong choice? I don't know what I'm doing. Like, I feel like a total neophyte in that regard.

Stefanie O'Connell Rodriguez: There are so many aspects of Claudia's story that feel like they fall outside the traditional parameters of 'retirement savings rules'—she hasn't had a traditional career path with a steady paycheck and steady access to a 401k, she's a small business owner of a restaurant, during a pandemic, she's a millennial woman balancing her student loan debt with her business debt with the need to save for the future, for both her and her husband—these are circumstances that are familiar to so many Americans today. So when we hear the standard retirement savings rules, it can be hard to see ourselves in them and figure out the path forward to saving for the future in a way that works with our lifestyles and our goals.

Coming up after the break, we talk to investing expert Amanda Holden about how Claudia, or anyone, can adapt and rethink retirement savings rules to meet their lifestyle and goals

Amanda Holden: So my name is Amanda Holden and I started a business called Invested Development, where I teach women how to invest or really anybody who's felt left out of these conversations because so often these conversations are reserved for people who already have money.

Stefanie O'Connell Rodriguez: So one of my favorite concepts that you talk about is visualizing your what is it, your bad granny self? Basically it's this idea about what does it really mean to look into the future and imagine ourselves as our retired selves to bring more urgency to investing for retirement today.

Amanda Holden: Really the idea is just, okay, so we're all working. We're all in the full throes of our careers, but do we really want to be doing this into infinity until we die? Do we really just want to be on Zoom calls until we die? No, I should hope not. You know, when I'm an old bad granny, as I like to call it, I'll be traveling my way through Europe and eating baguettes and drinking wine with my significantly younger lover and that's my vision for myself. And so I like to keep that on my proverbial vision board at all times, just to make the process of saving and investing for retirement a little bit more palatable. And so I just encourage us to keep a face on that process and that face just happens to be an adorable, slightly wrinklier version of the face that we have now.

Stefanie O'Connell Rodriguez: Thinking about what that vision of what we want our retirement to be also really brings to light this idea of how the definition of retirement has kind of changed over time and is changing from generation to generation. And I'm wondering among the women you're speaking to, how do you see that definition shifting?

Amanda Holden: Well, it's hard. So I am a millennial and specifically I am an elder millennial, and a lot of millennials that I work with feel like retirement is just not even a possibility or it's something that they are not really considering for themselves because they have so many other financial obligations that are more urgent that they need to take care of first, which is completely reasonable.

And I just want to encourage them to at least try considering baking it into their every year financial plans, because the reality iswe might not even have the option to work forever. I think that a really important statistic that is not talked about enough is the statistic that about two thirds of people don't get to retire on their own terms. They have to retire before they're necessarily ready. And this is for a lot of reasons, but one of the main reasons is because as we all know, the nature of work, especially now changes rapidly.

And so your skillset could not be as useful, you know, 30 years from now as it is right now. Also, of course, it's very hard to, to know what's going to happen healthwise in our own lives. And so it's something that we have to be prepared for, even if it's hard to do. And even if it feels like it's impossible, it's something that we should be considering.

Stefanie O'Connell Rodriguez: To your point about, you know, for millennials, for gen Z, you have this enormous burden of student loan debt, and it's really tricky to prioritize. Okay, how do I balance this need to meet my obligations here and now for that future self, I can think about my bad granny self all I want, and I can bring urgency to that vision as much as I want, but like, I also just have the reality of this $50,000 student loan debt or whatever it is.

So how do you balance those priorities?

Amanda Holden: Sure. So the good news is with saving and investing. It is easier and it is possible to get started now with small dollar amounts. And this was not possible, you know, 20, 30, 40 years ago to get started as an independent, a small, a young investor with very small dollar amounts.

Investing was really relegated for people who already had wealth. And so the good news is, even if you can prioritize just a little bit it's as much about building the habit as it is, knowing that you're saving some beaucoup bucks each month. Retirement is not necessarily an age. Retirement is an amount of money saved. Right. You don't get to walk away from work or walk towards meaningful work until you have enough money to do that.

And the idea that retirement is associated with an age, age 65 is what we typically think of is really a relic of pension plans past, right? Some of our parents and grandparents may have had pension plans, which is when your company or your employer saves and invest money on your behalf and then sends you checks in retirement.

Stefanie O'Connell Rodriguez: That sounds nice.

Amanda Holden: That sounds nice. Well, the reality is these big pension plans were really difficult for companies and employers to manage, and so basically that's when we saw the shift from the pension model to what we call the defined contribution model, which is basically the 401k Roth IRA model we have now where employers are being like, you know, we tried to do that. We tried to handle that for you, but it was kind of hard. And so we're going to push that onus on you.

And I don't think that we ever really let people know that that's the shift that was happening, right? If you are ever like, why didn't my teachers or why didn't my parents? Why didn't anybody ever teach me about a 401k? And it may be because your teachers and your parents literally did not have a 401k. This is all relatively new stuff.

Stefanie O'Connell Rodriguez: So I want to come back to our listener, Claudia, this week, um, one of the other interesting parts about her story is that she actually did start investing in a Roth IRA, very, very young when she was 17, but then throughout the course of going to college and then having the obligations of that and young adulthood, and then not having access to a 401k throughout her early professional career, it was really just tough to stay consistent with setting money aside.

And it really brings up the theme that she's struggling with now, which is, how do I invest for the future and balance that against investing in the business I'm trying to build right now?

Amanda Holden: This one is such a doozy because there is really no equation. So first I would say that it is very easy to get wholly, emotionally, financially, spiritually wrapped up in our businesses. And I think, especially as women, we do this thing where we, of course we nurture. It's just instead of a baby, we nurture our sweet little concept. And so, and so it's really hard not to do. Obviously we spend more time doing this than we do anything else.

But what it is is it is an investment and we have to remember that our businesses exist to serve us. We do not exist to serve our businesses. Like I am not my business. I am me, but I do want my business to help me build a terrific life. And so I encourage you to almost think about it in this way. Like Stefanie, what, what do you think is the strongest company in the world?

Stefanie O'Connell Rodriguez: I don't want to say it, but like Amazon.

Amanda Holden: Yeah, I mean, Amazon, Apple, like those would be the ones that would come to mind. Would you invest all of your money in that company?

Stefanie O'Connell Rodriguez: Absolutely not.

Amanda Holden: No, of course not. Right. You would never invest all of your own money in one company. That's just asking for trouble. So that should include our own.

Stefanie O'Connell Rodriguez: You know, we talk a little bit about some of the different accounts and one of the things that's come up with a lot of callers coming into the show is just this total overwhelm of acronyms, right? There are so many letters and numbers going around 401k, 403B, Roth IRA, SEP IRA. It's like, what is happening here? Where do I begin? And I just wonder, you know, how do you advise somebody to start sifting through that?

Amanda Holden: That it is hands down the most common question that I get is, what account should I use? What is the difference between a Roth IRA and a 401k? And so the way that I have people divided up in their brains is—again, with start with these two questions. The first question is who is opening this account? Is it going to be my workplace or is it going to be me?

And so with your workplace, that's a really easy place to start. If you've got a 401k or 403B through work then start there. Now, if you are opening it up yourself, you've got to consider either a Roth IRA, SEP IRA, or solo 401k. I would say that those are your top three. And so then we come to our second question, what type of taxation is it? And this is where it starts to get a little bit confusing, because even within the world of retirement accounts, there's two different types of taxation.

And so it is going to be a question of which type of taxation do you want—do you want a tax-deferred account where you're paying your income taxes on this money later when you withdraw it, or do you want a Roth account where you pay income taxes up front?

The good news is: They're all good. Just get started with something, make sure that you qualify, make sure that it's something that you can open. It's always good to check with a tax advisor. And so instead of focusing so much energy on the Roth versus tax-deferred 401k decision, I encourage people to just get started with something.

As you learn more, you can go back, you can do something new next year. That's all good and just get started. And then we can move on to the more important piece, in my opinion, which is the investing, because a Roth IRA, a 401k, these are just accounts. Now, granted they are fancy tax-advantaged accounts, where you can invest your money, but at the end of the day, it's still just an account.

And so I always like to compare like Roth IRAs, 401ks, to like a Caboodles. Stefanie, do you remember what a Caboodles is?

Stefanie O'Connell Rodriguez: This is like a very, what, eighties or nineties reference? Yeah, I never had one, but other fancier people had them in my life.

Amanda Holden: I feel like you, like, you either had one or you wanted one growing up, but basically what they are is they're like these like hot teal and pink or purple, like double deckers, like little storage units. Basically just a place where you can store all of your treasures. And so you can think of your Roth IRA as a Caboodles, it's just a storage place for your treasures, the investments that you hold inside—so like, whether that's your tie-dye scrunchy or your miniature novelty or racer collection, or your OPI nail polishes—those are the investments. Right? So that's your stocks, your bonds, your funds. Those are the investments you hold inside. And those treasures, those investments, that's actually what generates your rate of return.

Your Roth IRA is just an account. Cash can sit in a Roth IRA. Investments can sit in a Roth IRA. And so the Roth IRA does not generate your rate of return. The investments inside do.

Stefanie O'Connell Rodriguez: This did also come up in my conversation with Claudia. I did ask, I said, 'Do you know what's within your accounts you're invested in?' And even though she's super in tune with her finances, she wasn't super in tune with what's inside those accounts. And so I'm wondering how can people get started there, because that's its own level of overwhelm.

Amanda Holden: When we're talking about investing within a retirement account or investing within a brokerage account, we're really talking about two major different investment types. We say asset classes, and those are stocks and bonds. At the foundation of most things are these two different major asset classes—stocks and bonds. And so when we say something like, what is your asset allocation, which is the first starting place that we all, we always want to begin here.

I don't generally like to use jargon, but asset allocation is really important. All it means is this big picture decision of how much do I have in stocks? How much do I have in bonds? How much do I have in cash? How much do I have in real estate? How much do I have in my antique beanie baby collection?

Like that's just your major, broad-strokes asset allocation. And what people don't realize is that this decision is actually what drives the majority of your returns over time. Because we're so trained to think about investing in the small details, right? Because, like, what's more exciting, like understanding the tradeoff, the risk and reward, tradeoff between stocks and bonds or arguing about whether Microsoft or Apple is a better stock?

There's no shortage of excitement, which is what we naturally gravitate towards when in reality, we have to make this big-picture decision first. And so that is just like the first thing that happens is the decision between how much stocks and bonds, but the way that we're actually investing for the most part within our 401ks is not by picking individual stocks. We use funds for this. And so mutual funds, exchange traded funds, index funds. All of these really are nothing more than a big old basket of some other investment types. So a big old basket of stocks or a big old basket of bonds. And so deconstructing a fund and cracking it open and looking at what's inside is actually the most important part.

I think of it like a suitcase, right? Like a suitcase is very important in helping us get from point A to point B. It would be very hard to be a traveler without a suitcase. Right? Like, can you imagine carrying all your stuff for the airport? So that's like the same idea as like trying to like pick all your own stocks or own investments.

It's very difficult to do, but funds made it very easy. Basically, it's a way to package a bunch of investments together and it's made it very easy to invest, but what is more important than the suitcase itself, right? Like you could have two identical suitcases, but what is more important is what is packed inside.

And so imagine two different travelers, right? You have traveler one and traveler two, identical suitcases. They are both called mutual funds, but traveler one, in their suitcase what did they get packed in there? Well, it looks like they've got like a sequined bikini. They've got Mardi Gras beads, you know what I mean—they've got kitty cat nipple tassels. Where's this person going, like, I want to go there. That sounds fun, right?

You know, and then you compare that to traveler two. Traveler two, in their suitcase they've packed earplugs, a cable knit sweater, a nice long read that they picked up at the airport. Right? Clearly these two people are about to have very different journeys, because what is more important and what will really dictate the flavor of your journey is what is packed inside these funds.

If you are invested in a mutual fund that holds stocks, then you are invested in the stock market. If you are invested in a mutual fund or an exchange-traded fund that holds bonds, then you are invested in the bond market. Funds are just a really easy way to get this broad exposure to the two main markets that we are investing in as we're investing for the long term.

And so this is a really simple, easy way to just invest in these different broader markets, super simple, super cheap. And now your job, instead of trying to manage the best investments is to just get your money in, to just pile your money and, and get it into the market for as much time as possible.

Stefanie O'Connell Rodriguez: You're giving us all this wonderful way of conceptualizing these investments. We're talking about our future selves. So we're talking about the vision and then we're talking about the technical implementation and I'm wondering how that all comes together.

Amanda Holden: The first step is to look at okay, what....what markets am I getting exposure to via these funds? And it should be pretty clear in the name or the description.

If it's not clear, you know, take the name of that fund to Google Finance, and you can pull up an entire description page on what it is. It does take a little bit of getting used to because it is a whole another language. Something hopeful that I would tell people is that the investment universe is not as limitless as you think it is.

There is a set amount of information that once you know, it, it just all becomes clear. It all clicks. It just does take sitting down and learning this jargon, learning what we're dealing with a first time.

You are absolutely capable of understanding what is going on and don't be turned off by the world of investing. It's changing a little bit, but historically it's been like dusty old dudes and Wall Street bros that make you feel bad because they're condescending. And it doesn't have to be like that.

Don't get bothered when things get scary when the market is volatile. If you're going to play the game, you gotta play the whole game and so ride through any volatility. But really your only job is to just get your money in and let it rip. What you don't need to do is like, have three different trading screens, like shotgunning 16 Red Bulls, day trading... that's not what investing is. It's actually quite simple once you learn the mechanics.

Stefanie O'Connell Rodriguez: So what are the new rules of retirement? To start, they're an acknowledgement that the financial landscape has shifted from the golden days of steady, predictable career paths and pension plans, but they're also a recognition of what's possible in this new era. With tools and technology that make investing even small amounts accessible to so many more people, the most important thing we can do is get started. And bake investing for our future, whatever we want it to look like, into our financial plans today. Even if it's just a few dollars at a time, getting into the habit of investing for retirement is more important than the amount, at least to start. And we can always scale up our contributions as we're more able.

Remember that the best type of retirement account is the one that actually gets used. So don't let the debate over where to get started derail you, just start, and then, continue learning as you go. Setting aside some time whenever you can to learn a bit more about, not just your accounts, but the investments within them. Keeping the vision of your own 'bad granny' future self, as Amanda would say, as a reminder that you're worth the investment.