I get this question regularly. The answer is, “Not nearly as much as you think.”
A lot of people put off saving for retirement because they feel like they can’t put enough in. They feel like they don’t have a big enough “down payment” to get started.
But the truth is that contributing even very small amounts, as little as $5 a month, regularly is plenty to get started.
The most important thing is starting. So don’t wait any longer. Start right now. Your future self will be so happy and grateful that you did.
How Do I Start Investing for Retirement?
If you don’t have access to a workplace retirement account, you’ll need to create your own. Luckily, that’s really easy to do.
You start by opening a traditional IRA (individual retirement account) or a Roth IRA. A traditional IRA gets funded with pre-tax dollars, so you can deduct your contributions on your current tax return for an immediate tax bonus. Roth IRAs get funded with after-tax dollars, you pay taxes now in exchange for no taxes in the future.
Both types of IRAs let you put away money for retirement without any tax drag on the account earnings. That lets your money grow faster than it otherwise would. Unlike regular investment accounts, where you pay tax on the earnings every year, you don’t pay tax on earnings in a traditional IRA until you take the money out. And you never have to pay tax on the earnings in a Roth IRA (as long as you follow all the rules – I’ll explain everything further down, keep reading).
When you’re putting away money for retirement, time is your best friend. The more time your money has to grow, the bigger your nest egg will become. That’s the magic of compounding.
And you will never have more time on your side than you do today.
What’s Compounding?
Compounding is money magic. It’s the process where your money earns its own money without you lifting a finger.
Here’s how it works:
Let’s say you deposited $100 into a high-yield savings account earning 4% interest per year. At the end of year 1, you’d have $104. That’s the $100 you put in plus the $4 your money earned in interest.
At the end of year 2, you’d have $108: The $104 plus the 4% interest it earned during the year.
After 10 years, you’d have $148. Without ever depositing another cent. That’s the magic of compounding.
Over time, your account balance continues to grow this way. And the power of compounding works best when you give it plenty of time to work. Like in an IRA, where it will sit for decades.
What’s an IRA?
An IRA, or individual retirement account, is just what it sounds like: A retirement account you set up on your own. Like workplace retirement plans, IRAs come with special tax advantages designed to accelerate account earnings.
There are two types of IRAs: traditional and Roth. And their tax benefits are very different. But some features are the same. Their similarities include:
- No minimum investment requirement
- Maximum annual contribution limits, $7,000 for 2025
- Contribution deadline for the current tax year is the tax return filing date (for example, the 2025 contribution has to be made by April 15, 2026)
- People 50 and older can make an extra $1,000 catch-up contribution
Other than that, the tax treatment and other rules for the two are basically opposite.
Traditional IRA
A traditional IRA gives you an immediate tax deduction for your contributions plus tax-deferred growth on earnings. You won’t pay tax on any of the money in your traditional IRA until you withdraw it. If you wait until you’re at least 59 ½, your withdrawals will just be taxed at your regular income tax rate.
But if you take early withdrawals (before age 59 ½), you’ll pay an additional 10% penalty (unless you qualify for a special exception). Also, once you reach age 73 (75 if you were born in 1965 or later), you’ll have to take required minimum distributions (RMDs) from your traditional IRA.
Roth IRA
A Roth IRA works sort of opposite to the traditional version. You won’t get an immediate tax break on your contributions (you’ll make after-tax contributions). But as long as you follow the rules, you’ll never pay any tax on your withdrawals.
All of the earnings in your Roth IRA will be tax-free. Plus, since you’ve already paid tax on your contributions, you can withdraw them whenever you want with no tax hit. But if you withdraw any earnings before age 59 ½ or before the account has been open for at least five years, you’ll probably have to pay regular income taxes plus the 10% early withdrawal penalty.
Note: High earners may not be allowed to put money into a Roth IRA, or at least not the full annual amount. If you’ve earned more than $165,000 for single filers or $246,000 for married filing jointly in 2025, you can’t contribute directly to a Roth IRA.
Which Is Better?
People always ask which is better: traditional or Roth?
That completely depends on your specific circumstances.
Generally speaking, I prefer Roth IRAs. Not only do they offer more significant long-term tax benefits, they also give you access to your contributions (but not account earnings) at any time with no tax consequence. And they don’t require RMDs, so you don’t have to withdraw money when you don’t want to.
That said, a traditional IRA may be a better choice for your situation. For example, you may need more cash flow right now, so the immediate tax deduction would be a big plus.
How Can I Open a Retirement Account with Hardly Any Money?
You don’t need to have hundreds or thousands of dollars to open a retirement account.
In fact, you can open an IRA without depositing any money at all. The major players in the IRA game – Fidelity, Vanguard, or Schwab, for example – all offer this option. These accounts typically come with no monthly fees, no account minimums, and many no- or low-cost investment options to choose from.
All you need to open your IRA is your tax ID number (usually a Social Security number), your driver’s license number, linked bank account information, and any beneficiary information.
It takes less than 30 minutes to set this up. Then whenever you’re ready to make a contribution, your IRA will be ready.
How Small Can My Contributions Be?
You can make any size contribution you want.
The amount you contribute isn’t as important as the fact that you’re making one at all. Even small amounts like $5 or 10 a month can add up to thousands over time. So start with whatever amount you can. Then you can increase your contribution amounts whenever you’re able.
What If I Can’t Put Money in Regularly?
Making contributions as often as possible will help build up your retirement nest egg.
Automated consistent contributions will build up your account the fastest. It’s generally better to contribute regularly, even with very small amounts, as often as you can. But if that’s not possible, putting money into the account whenever you can will still help it grow.
Honestly, any amount you put in your IRA is a good thing for your financial future.
Remember, you need to take the final step and invest the money you contribute to your IRA. If you don’t, your money won’t have the chance to grow on its own, building up even faster.
You don’t need a specific amount in the IRA to start investing. You can start buying into many funds with however much money is in your account (though some specific funds do require minimum investments). For absolute beginners, it’s often best to choose no-fee broad market index funds to get started.
Ready to Start Investing for Retirement?
Check out my book, Retirement 101 2nd Edition
In this easy to use book, I walk you through how to open an IRA and give you all the information and options you need to make this investment grow steadily, so you have it when you retire. (That includes expanded options for you if you’re self-employed.)
I also show you all the other retirement options available to you. Plus, I explain how to determine when you want to retire, so you can make that happen on your own terms.
Click on the button below to find out more about this incredibly helpful book and get your copy now.