I'm 27, and I've started saving for retirement using a 3-part strategy

Courtesy of Caroline Lupini

Caroline Lupini.

• I'm 27, and while I don't think I'll ever want to completely retire, I still want to have a plan to save money so that I can work less as I get older.
• For the most part, I like to keep my retirement savings simple so I don't have to spend time thinking about them, but I do also like to mix things up and invest in companies I believe in.
• As of now my retirement savings is currently broken into two main categories: the money I set aside and never think about again (until I need it) and the money that I'm a little more active with. 
• I use a three-part strategy to save for retirement: I invest money monthly in a SEP IRA, I do a little active investing through an app, and I leave a Roth IRA I've had for years untouched. 
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I'm 27 and I'm always improving on my retirement strategy.

I'm lucky, because my parents taught me a lot about money and saving when I was growing up, so I have retirement savings from the time I got my first job in high school. Once I started working for myself, it was a little more complicated to figure out a strategy since different investment vehicles are available to me and I don't have a consistent paycheck.

As of now my retirement savings is currently broken into two main categories: the money I set aside and never think about again (until I need it) and the money that I'm a little more active with. Those categories facilitate a three-part strategy:

My 'set it and leave it' strategy

At the end of every month, I look at how much I was paid and invest 20% into my SEP IRA. I have my SEP IRA through Vanguard, and I invest in its low-cost total stock market index fund (VTSMX) and then I leave it alone … for a very long time.

In 2019, my SEP IRA allows me to invest up to $6,000 as myself and 25% of my income - or $56,000, whichever is lower - as my employer (but ends up being closer to 20% because of the way the calculation flows through the Schedule C during tax season). At the end of the year, I let my CPA fill out all of my tax paperwork and let me know if I can contribute more. If I can, I top it off. 

Starting in 2020, I plan to open a Solo 401(k) and switch my contributions to that account, because at the current point in my life and career, I'll be able to invest more than my SEP IRA can hold. A Solo 401(k) will allow me to invest up to $19,000 as myself and that same 25% (actually more like 20%) that I can invest with my SEP IRA. 

Both plans have a maximum yearly contribution of $56,000 for 2019.

My 'have some fun with it' strategy

While I love that my Vanguard fund has a low expense ratio, I also like to invest in companies I believe in and speculate occasionally. I don't have a specific amount of money that I dedicate to more hands-on investing, it just depends on what is left over after I pay for all of my other expenses.

Before the days of investing app Robinhood, I couldn't justify doing this because I often only want to buy $50 to $200 worth of a single stock or fund. With fee-free trading, however, I've been able to learn a lot, have some fun, and make some money.

Even within my more active portfolio, I do have some stocks and funds that I consider to be "long-term" investments. These are mainly companies I believe in and funds for which I want to have more representation in my overall portfolio.

And then I have a few stocks that I don't necessarily consider to be long-term holds. These are sometimes still companies I believe in, but are sometimes companies that are just in the press a lot. These are a very small amount of my overall investment strategy, and it might not even be entirely fair to include them in my retirement savings at all.

My 'I didn't set it up so I'm leaving it alone for now' strategy

I also have some investments that I didn't set up myself. These mainly include bonds and a Roth IRA that were given to me or set up when I was younger, and for the most part, I'm leaving these alone right now. I do check the interest rates my bonds are earning every once in a while, and if the rates drop or the bonds reach maturity, I will cash them out. 

My Roth IRA was set up when I got my first job in high school, and while the funds have higher expense ratios than VTSMX, I am leaving them as-is right now for some diversity. 

For me, the best overall strategy for saving money for retirement is putting the bulk of my money into a SEP IRA (soon to be a Solo 401(k)) and investing in VTSMX or another fund with a low expense ratio. I like this strategy best because I don't have to pay attention to what is happening with my money, because I believe that, overall, the stock market is going to continue to go up. But, I do also like to invest in companies I believe in and occasionally take a bit of a (small) gamble. 

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