Investing for retirement is more complicated than opening an IRA or maxing out your 401(k). In fact, according to a 2010 survey by Charles Schwab of people 50 and older, nearly one in three say they find investing for retirement a bigger challenge than dealing with expenses or saving money.
And no wonder: Pensions have mostly given way to so-called defined contribution plans ? think 401(k), 403 (b) and 457 plan ? which have placed the burden of investing to provide for a steady income on your shoulders.
Park your money in the right accounts. The U.S. tax code offers several advantages for retirement investors.
Here are more suggestions that you should follow:
It is best that you save the most money that you can. The government sets annual contribution limits on retirement accounts. Do your best to max them out: 401(k) accounts and other workplace retirement plans have a $16,500 annual contribution limit ($22,000 for those 50 or older). IRAs and Roth IRAs both have $5,000 limits ($6,000 for those 50 or older).
If you are behind on your savings, then you should save 20% more. Put that money into a taxable brokerage, certificate of deposit or bank account.
When you have both tax-favored retirement accounts like 401(k)s and IRAs, as well as brokerage accounts and you are not sure where to place that money, then you should put a higher percentage of stocks into your taxable accounts, while taxable bonds are better off in your tax-favored retirement accounts like your IRA. Asset allocation becomes very important to you.
If you need additional assistance to decide, then look for the services of a retirement planner to make the
best decisions for you. A key study found that 91% of a portfolio?s performance is determined by allocation
of assets, not individual investments or market timing.
It is very important that you pick the right investments. Misguided investment choices can cost you tens of
thousands of dollars over a lifetime.
Age considerations are also of the utmost importance. If you?re 55, at least 65% of your portfolio should be in stocks, regardless of which types of accounts you are using to invest for retirement. The rest of your portfolio should be in fixed-income investments like bonds, bond funds or CDs, which generate annual interest income.
You probably won?t be surprised if I tell you how necessary it is for you to select the right investments.?Diversification has always been considered a necessity to avoid risk. For the stock portion of your portfolio, consider index funds and mutual funds and get exposure to domestic and international markets, as well as small, medium and large cap stocks; for the fixed income portion of your portfolio consider bonds, bond funds, CDs or possibly real estate or commodities.
Again to make sure that your retirement planning is optimized, it is a good idea to seek the help of a qualified financial investment advisor. Just be cautious about how he gets paid.
Here are some ?Don?ts? of which you should be aware:
- Don?t time the market. Just buy and hold for the best results.
- Don?t always be adjusting your investments. Just review your portfolio once a year with or without the help of a financial advisor. Investors who rebalanced their $100,000 portfolios once a year ended up with roughly $31,000 more over a 20-year period than those who didn?t re-balance and nearly $20,000 more than those who rebalanced monthly, according to a study by T Rowe Price.
- Don?t think emotionally, think rationally.
- Don?t assume you can make up for lost time. Just get started and proceed diligently, but with caution and use a lot of good common sense.
This is not always the most fun topic for baby boomers to talk about, but it is such a necessary one. Because my background is business and finance, it is my desire to encourage you to take the task seriously and yet teach you the best way to approach it to maximize your results.
For additional information, please refer to the magazine Smart Money?a division of the Wall Street Journal. I find that it explains this complicated topic very plainly for people who are finance gurus.
Smart Money Magazine
kepler 22 b kepler 22 b st nicholas st nicholas mindy mccready mindy mccready cliff harris
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