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MoneyTrack: Retirement 101

Retirement planning isn’t a one-size-fits-all approach. The retirement planning strategy that’s right for you might be different for your best friend or your worst enemy, even if you’re about the same age and have roughly the same income. Although strategies may differ, certain retirement planning tips may be helpful during various stages of your life.

20s and 30s

One things for certain, life in your 20′s and 30′s is anything but stable. From jump-starting your career to establishing your roots, many rarely think to invest. However, thanks to the proven power of compound interest , this is precisely the time when you should start investing. This simple step will make a huge difference later on in life when you are ready to throw in the towel and retire… And I think we all agree that a stable, secure retirement is important!

We suggest you start investing through some form of a retirement account. You can opt into a Qualified Retirement Savings Plan through your work (i.e. 401k) or open up an Individual Retirement Account. If you are self employed, consider setting up a Simplified Employee Pension (SEP-IRA), SIMPLE-IRA, or a Keogh plan. It’s important to begin making consistent contributions immediately into a retirement investment account, even if you do so with only about 1% or 2% of your salary.

For most people, the name of the “retirement” game in your 20′s and 30′s is to build out the core of your retirement portfolio through widely diversified investments so you can better weather the market ups and downs. On MoneyTrack, we like to think of index funds as our secret weapon because they add instant diversification at the lowest possible cost.

40′s and 50′s

How are you doing in the retirement arena? If investing for retirement hasn’t been a priority, it’s time to make it one — A.S.A.P. If you already have a retirement plan in place, consider increasing your contributions to max out your account.

Unless you’re planning to retire early, it will still be awhile until you need to begin withdrawing from your retirement accounts. Consider keeping the majority of your investments in stocks and as you get closer to retirement, begin shifting your money into more stable, fixed income investments, such as bonds. Your own personal risk tolerance and the number of years you have before you’d like to retire are factors in determining your mix of investments

60′s and Beyond

By the time you hit 60, we hope you are well on your way to funding your dream retirement. If not, contribute the maximum allowable amount to any retirement savings plans available to you. If your nest egg still isn’t big enough, invest any bonuses or windfalls that come your way. If you live in a two-income household, start banking one and saving the other.

Your retirement might last 30 years or more, so keep some of your money in the stock market to ensure that your investments will keep up with inflation. However, the last thing you want is to be forced to liquidate any investments for ready cash. Many financial planners recommend that you keep three to five years of living expenses in cash.

Once you do decide to retire, it’s extremely important to calculate how much money you can pull out of your nest egg each year. A good rule of thumb is to pull out about 3 to 4 percent, even if your investments are growing at a higher rate. That way, you won’t have to worry about running out of money!

MoneyTrack Rule of Thumb: Don’t outlive your savings! Plan to spend only 4-5% of your total savings per year.