April 8, 2014

The Easy Retirement Planning Approach

National Retirement Planning Week is set for April 7 to April 11, 2014.  Does this make you think about your retirement savings?  How’s it going for you?  If you’re like most working Americans, you spent more time pondering the menu at your last restaurant than planning for a secure retirement.  The secret to getting ahead is getting started.  So let’s go…

Most people avoid thinking about retirement savings because it seems too complicated.  “What about the stock market?  Where are interest rates going?  Is it a good time for bonds?  When will the economy  get better?”  All these questions seem dizzying and are impossible to answer.  So, we suggest you simplify things and focus on the two things can control. 

First, how much should you save?  This differs for everybody but here’s some general direction.  If you’re in a company sponsored 401(k), always invest enough to capture the entire company match.  That’s a starting point.  Even better, make sure your total savings adds up to 10% of your gross pay.  The best approach is to use a retirement calculator and find out how much you should be saving to reach your goals…then save that much.

Second, determine the appropriate asset allocation of your investments (mix of stocks, bonds and fixed).  A good target date fund will do this for you.  They are designed to have an appropriate mix that gets more conservative as you approach retirement.  If you do it yourself, remember that the younger you are the higher % of stocks you should own.  For example, a thirty year old may have 75% to 90% in stocks whereas a fifty-five year old should have 35% to 60% in stocks.  But pick a reasonable mix and stick with it and avoid trying to time to market.