For many Americans, the dream of a secure retirement is nothing more than a dream! Do you wake up in the middle of the night wondering if you will ever be able to retire? Here are some tips that might help you realize your dream and avoid the nightmare!
- Make a Plan: Those who have a written plan are far more successful than those who do not. Your plan should include: what age you want to retire, how much income you will need, how you will pay for health care, what inflation factor you will use, and the sources of your retirement income.
- Start Saving Now: Participate as much as you can afford in your company’s retirement plan. At least contribute up to your employer’s match. If you can defer more than the match amount, a good rule of thumb is to save at least 10% of your income. If you are able, defer the maximum allowable.
- Save Outside of your Retirement Plans: While utilizing your company retirement plan is the easiest way to save for retirement. It will, however, create an income stream that is 100% taxable. Try to save outside of your company retirement plans. A Roth IRA is one way to help generate a source of tax free income. Consider having tax managed accounts to avoid passive income prior to retirement.
- Understand What Kind of Investor you are: Are you a conservative investor or do you have more of an appetite for risk? You should have your risk tolerance measured on a regular basis to make sure your investments are in line with your risk tolerance.
- Create Sectors That Have Specific Investment Goals: You should have an emergency fund, a low risk bucket, a moderate growth sector, and a source for income. In retirement, if you need to buy a new car or you want to take a dream vacation, does your plan identify which sector to use for that? Understanding that you’ll have different sectors with different investment goals will help you to have a secure retirement.
- Don’t Go It Alone: Source after source has shown that investors who work with a Financial Advisor earn 2-3% more per year than those who go it alone. Advisors have more tools available to them than the average investor. Furthermore, the average investor will panic and get out of the market at times when market volatility doesn’t warrant a move. Furthermore, the average investor usually waits too long to re-enter the equity markets when they move from a bear to bull market.