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A Guide to Saving for Retirement
from: John MussiSaving for retirement begins early, and often we can overlook
important steps unknowingly. Here's a quick guide for making
sure you're getting the most out of your retirement savings.
Analyze your needs sooner than later.
The step most people skip is figuring out just how much money
they'll need in retirement. Try to consider your lifestyle. What
are you expecting your retirement to be like? International
travel? A second home? These are all things to consider when
building your savings. You should also keep in mind that, if
present trends hold, you may need to pay for much of your own
health care because many employers are cutting or reducing the
amount of money they spend on retiree health coverage. As you
analyze your needs, take into consideration any other resources
you may have to tap, such as savings outside a 401(k) or real
estate when you do retire.
Don't neglect your 401(k).
The best place to start when it comes to putting money away for
retirement is your 401(k). After all, your company's 401(k)
retirement plan offers you one thing you'll get few other
places: free money. For every dollar the average worker puts
into their 401(k), their employer contributes 50 cents.
Many people don't contribute, or don't contribute as much as
they could. Be sure to add to your 401(k) as often as possible.
For those who do, consider boosting your contribution to the
max. The maximum number you can add per year to your retirement
savings increases at the rate of inflation. Check with your
employee benefits office to make sure you're getting the benefit
of your entire match. Government rules try to make sure that
retirement programs aren't being run for the benefit of top
execs.
Get the allocation right.
Whether you're saving in a 401(k) for the first time, or
reassessing your current savings, you'll want to make sure the
mix of investments you have is right for your age and the amount
of risk you're willing to take on.
Remember, simply being diversified enough has a bigger impact on
your returns than which funds you choose. Take time to examine
the list of funds offered in your companies plan and toss out
the ones that don't fit your asset allocation. Keep in mind that
your investment options may be limited, depending on what your
employer is offering. If you have a question, check with your
Human Resources department. Keep in mind that stellar short-term
performance alone isn't a reason to buy.
Try keeping it simple with a six-part approach: One large-cap
fund, one mid-cap, a small-cap, an international fund, a bond
fund, and a money market fund. For the more advanced investor
with multiple savings goals, a well-diversified portfolio
typically consists of owning 15 to 20 funds.
Put your finances on automatic.
If your problem is that you find it difficult sticking to a
savings plan, then your best bet is to go automatic. This way
your employer will take the money out of your paycheck before
you have a chance to spend it, and put it directly into your
401(k).
If you don't have a savings plan at work, or you have the
ability to save more money than your 401(k) allows, consider
investing elsewhere. You can open up an account with a bank or
brokerage and instruct them to automatically debit the funds
from your bank account.
And if you feel comfortable with this, you may just feel
comfortable automating other areas of your financial life such
as credit card and utility payments. Log onto your bank's Web
site for details.
You may freely reprint this article provided the following
author's biography (including the live URL link) remains intact:
About the author:
John Mussi is the founder of Direct Online Loans who help
homeowners find the best available loans via the
co.uk website.
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