Until I saw something about this on Twitter I had no idea that National Save for Retirement Week even existed. Congress
in a rare act of wisdom has designated October 21-27 for Americans to focus on saving for our retirements.
Now I’m not one for what I deem contrived holidays. Just ask the lovely Mrs. The Chicago Financial Planner. This past Saturday I dropped $3.99 (plus tax) on a Happy Sweetest Day helium filled balloon, the first time in our 28 year marriage that I have even acknowledged the existence of this florist contrived day. I will say her reaction was well worth the money spent.
However, any event that highlights the need to for Americans to address the impending retirement savings shortfall that many of us are facing is a good idea in my book.
A recent study by the Employee Benefit Research Institute found that even working until age 70 will not solve that lack of retirement savings for many workers. They found that even an additional five years of work will leave about 80% of current pre-retirees short of their retirement income needs.
What can you do help ensure that you are on track to a successful retirement? While there are no guarantees here are some tips:
Save early and often. Starting with your first job, try to save at least 10 percent of your gross income before you get used to spending your entire paycheck. A good place to start is with your 401(k) plan at work. Make sure at a minimum to save enough to take full advantage of any employer match.
Take appropriate investment risks. I’ve read several articles discussing how some younger workers are quite risk averse in the wake of the 2008-09 market decline and are investing their retirement plan accounts accordingly. This is a huge mistake. I have a 24 year old daughter. When she asked me how to invest her 403(b) plan account at work, I suggested that she allocate 50% to a total stock market index fund; 40% to a total international index fund; and 10% to a total bond market index fund. I further suggested that she do this through thick and thin, set her account to auto rebalance semi-annually, and that we’d revisit her allocation in ten years.
Younger workers have the gift of time on their side and should take appropriate investment risks. Workers who are nearer to retirement should also take age-appropriate risks. This will vary, but in my experience most investors need a growth component in their portfolios.
Make retirement savings easy and automatic. While some might bash 401(k) plans (in some cases deservedly so) a workplace retirement plan is an easy, painless way to save for retirement. Unless your organization’s plan is just terrible, participate and contribute as much as you can. The convenience of having the money come out of your paycheck automatically trumps a lot of ills in my opinion.
Start a retirement plan if you are self-employed. Self-employment has many pluses. A minus, however, is the need to fend for yourself in terms of employee benefits and in saving for your retirement. There are several options here, make sure to start your retirement plan as soon as possible. You work too hard not to.
Get a financial plan. Whether you do it yourself or you hire a professional, get a plan in place, review the plan annually, and adjust as needed.
What steps are you taking to ensure that you are financially prepared for retirement?
Please feel free to contact me with your retirement planning and investment questions.
Photo credit: 401(K) 2012