In this topic, you'll learn:
- Our top 10 retirement savings tips, from starting now to paying off your most expensive debts first.
- How to calculate how much money you will need for retirement.
- How much you will need to save monthly to meet your long-term goal.
If you have reviewed the material on retirement planning, you already have an excellent "big picture" of the risks and rewards involved. These quick tips will help you avoid some of the more common pitfalls of saving for retirement.
- Start saving. Many experts suggest aiming to save 10% to 15% of income for retirement, though the right amount depends on your age, financial situation, and goals. Starting as early as possible can take advantage of compounding over time.
- Make it automatic. Your retirement savings should be deducted from your paycheck automatically. Having to send in checks monthly increases the chances that you will forget or spend the money elsewhere.
- Maximize any employer matching. If your employer offers a 401(k) plan with matching, be sure to max out the matched portion of your contribution. For example, some employers contribute 50 cents for every dollar saved up to 6% of your income. By not taking advantage of those matching funds, you would be giving up potentially thousands of dollars per year.
- Start an IRA, even if you have access to a 401(k). Provided your income doesn't exceed a certain threshold, you can have both an IRA and 401(k). If your employer does not offer a 401(k) plan, an IRA is an easy way to start a retirement savings plan.
- Spend wisely, and invest the savings. For instance, a major cause of wasted money is purchasing new rather than used cars. Save up to 30% to 40% by buying a 2-3 year old car instead and apply the savings to retirement or to an asset could appreciate (like a home).
- Pay off expensive debt first. Many of us have debt from student loans, mortgages, and credit cards. Pay off the highest interest rate debts first, and then progress to the others. Staying out of credit card debt in particular is a great way to find extra cash for saving.
- Save windfalls. Tax rebates, yearly bonuses, and any other windfalls should be saved, not spent.
- Trading individual stocks? Most financial professionals suggest that a diversified approach using low-cost funds may be more appropriate for retirement savings than attempting to select individual stocks, though investment decisions depend on individual circumstances and risk tolerance. And be skeptical of stock market gurus - nobody can tell the future, and many books or expensive newsletters actually offer no better performance than common stock indexes. When saving for retirement, time and the compound interest it offers is your best friend.
- Consider a checkup with a fee-based certified financial planner (rather than a financial planner that is paid by the companies whose investments she recommends). For generally around $150, you can get a personal consultation to make sure you are on the right path for retirement and that your whole financial house is in order - from insurance to estate planning.
- Reevaluate asset allocation every 5-10 years. As you get older, you may want to move the bulk of your investment portfolio into more conservative investments. As your income grows, you may want to save more money per month.
