Saving for Retirement

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Your Investing Life: Starting your first full-time job

September 03, 2013

As you get ready to start your first full-time job, you're probably wondering about the kind of work you'll end up doing, whether you'll like it (and your coworkers), what the place will be like, and if you'll fit in. Something else you're anticipating? Your first full-time paycheck.

Something you might not be expecting is the number of choices about taxes and benefits—and the forms you'll have to fill out—on your first day. But by taking some time to make wise decisions with those options, as well as your new income, can help you lay the groundwork for a solid financial future. Check out these tips to help you get there.

Your family life. Your work life. Your investing life.

When "life happens," your financial and investing plans can sometimes get moved to the back burner. These articles can help you bring your investing life—and its effects on your (and your family's) financial future—back to the forefront.

» Changing jobs

» Going part-time

» Losing your job

» Going back to school

» Starting your own business

» Going back to work

Use your employer's retirement plan

Your employer may offer a retirement plan, such as a 401(k) or 403(b). If you're not automatically enrolled, sign up for it as soon as you're eligible. You may think you have plenty of time before you need to worry about retirement. But it's never too soon to start setting aside money for the time when you're no longer working.

Maria Bruno"When you land your first job, the last thing on your mind is likely retirement. But there are financial and tax benefits to start saving now," said Maria Bruno, a senior investment analyst with Vanguard Investment Strategy Group.

Ideally, you should shoot to put 12%–15% of your salary toward retirement. "That can be a lofty goal, particularly for someone just starting out," said Ms. Bruno. "Don't look at that number and think, 'Wow, this is such a large number; I can't do it.' Focus on creating a goal to get there."

At the very least, contribute enough to get whatever percentage your employer matches (if there is one). "If you're not taking advantage of the company match, you're actually leaving free money on the table," said Ms. Bruno.

Check out the investment options available in your employer's plan. With retirement as your goal, you'll want to select an appropriate mix of stock and bond investments. Diversification—not having too much of any one type of investment—and balance are key tools to help with investing success.

If you don't have the knowledge or time to manage your portfolio, target-date funds, such as Vanguard Target Retirement Fund series, can be an excellent choice. "These funds handle the complexities of portfolio management for you. They take care of the asset allocation, the diversification, and the reallocation over time, based on the retirement date for each fund. The closer you get to retirement, the more conservative the fund's investment mix becomes," Ms. Bruno said.

If you receive a raise, divert at least some of it into your retirement account. Contributing an additional percentage point or two each year can help you save more without feeling too much of a pinch on your paycheck. Many employers offer an automatic increase program that will do this for you. If yours doesn't, you can usually request the increase yourself without much difficulty. Your employer's HR contact can help you do this.

Most employers can automatically withdraw your contribution from your paycheck, too. When you don't see it, you don't miss having that money as much.

You can also open an IRA (and potentially qualify for some tax benefits if your employer doesn't offer a retirement plan.)

Power up your savings with compounding

The power of compounding, which results when you keep investing any earnings you get on your investments instead of cashing them out, really kicks in with retirement savings. You can take advantage of the decades you'll have if you start saving for retirement when you're just starting your career. Here's an example of two investors—one 25 and one 35, both saving $1,000 a year and earning a hypothetical 6% return.

Power of compounding

Source: Vanguard Investment Strategy Group.

Note: All investing is subject to risk, including loss of principal. This hypothetical illustration assumes a $1,000 annual investment for 30 years at a 6% annual return. It does not represent the return on any particular investment.

"At the end of 30 years, both investors have about $83,000. But our 25-year-old investor, who stops contributing at age 55, ends up with almost double that of the second investor, solely due to the power of compounding," said Ms. Bruno.

Keeping your investment costs low can give compounding an extra boost, too. When you pay less in expenses, more of your money stays available to be invested, with the opportunity to earn returns. (At 0.19% versus 1.11%, Vanguard funds cost 83% less than the industry average, according to data from Vanguard and Lipper as of December 31, 2012.)

Weigh risks against rewards—and remember time can be your friend

With any investment, you'll want to consider the balance of risk to its potential rewards. More risk generally means more potential for reward, but it can mean more short-term losses, too. (You can find the level of risk for each fund right on its Overview page on and limit your choices by risk, too.)

When you're saving for a longer-term goal, such as retirement, you might feel comfortable taking on more risk, since you'll have time to rebound from a possible downturn. Plus you'll also need your investments to grow so you'll have savings to combat inflation over the long term. But for money you expect to need right away, such as the sum in your emergency fund, you'll want to keep risk low.

Deal with debt

If you're like most of us, you already have some debt to deal with—maybe some student loans, a car loan, some credit card debt, or all of the above.

Getting those balances down on an entry-level income can be challenging, especially when you've got other uses for that money. The U.S. Department of Education has a federal student aid site with information about repaying, consolidating, deferring, and getting forgiveness for college loans.

With car loans and credit card debt, it pays to be a smart shopper and keep your debt load from growing too burdensome. "Consumer debt is one of the challenges that, if not controlled, can spiral and really add up," Ms. Bruno said.

No matter what type of debt you've got, making regular payments is key to building a good credit history. It'll serve you well in the future, especially if you want to buy a home. Some employers check your credit rating as part of their hiring process, so having a good rating can help your career, too.

Prepare for the unexpected with an emergency fund

Sarah HammerAn emergency fund lets you bounce back from life's little surprises—a leaky window, car trouble, or an unexpected medical bill—a little more easily. "We recommend putting aside at least 3–6 months of living expenses in cash in your savings or money market account. The more the better, so if you can get up to 36 months' of expenses saved, that's great," said Sarah Hammer, a senior investment analyst at Vanguard.

Once you pass the recommended threshold, don't stop. Saving regularly—even if the amount is small—can add up, especially over a long period of time. Let's say you put $10 a week into a savings or investment account and you do it for 20 years. You'll have $10,400 saved even before you earn a return. Any extra money you save can come in handy when you're ready to buy a car or a home. And the savings habit is one you'll benefit from for years to come.


  • All investing is subject to risk, including the possible loss of the money you invest.
  • When taking withdrawals from a 401(k) or an IRA before age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax.
  • Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
  • For more information about Vanguard funds, visit Funds, Stocks, & ETFs or call 877-662-7447, to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.
  • Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the work force. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target date funds is not guaranteed at any time, including on or after the target date. Diversification does not ensure a profit or protect against a loss in a declining market.
  • We recommend that you consult a tax or financial advisor about your individual situation.
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