Growing Your Nest Egg for Retirement: How Much is Enough?
~Adapted from FDIC Consumer News~
Most people don't save enough to retire comfortably. Here are some tips from the FDIC.
Everyone hopes to lead an active, independent, worry-free life in retirement. But achieving these dreams takes money, and one message comes across loud and clear in research studies and forums on retirement savings: Most Americans are NOT saving enough for their retirement.
Many authorities suggest that in your retirement years you need 70 to 80 percent of your pre-retirement income just to maintain your current lifestyle. But if you are planning on traveling more, buying a retirement home or other lifestyle changes, you may need more. Here are some tips to consider:
1. Make saving for retirement a priority. Start by figuring out how much you need to set aside, perhaps by using one of the many interactive worksheets available on personal finance websites (one being the ASEC's "Ballpark Estimate"). Among the other steps you should consider: Contribute as much as you can to 401(k) savings programs at work and Individual Retirement Accounts (IRAs) through your bank or brokerage firm. Arrange for automatic, direct deposit of funds into 401(k)s and IRAs. Also, plan to increase your retirement savings with each pay raise.
2. Diversify among a mix of investments. Experts suggest a mix of investments and savings programs, typically including IRAs and Keogh accounts (for the self-employed); 401(k)s and pensions offered by employers; bank certificates of deposit (CDs); a good variety of stocks and bonds (individual or in mutual funds); and real estate. If you're in your 20s or 30s, and depending on your tolerance for risk, you probably can afford to be moderately aggressive with your investments. If you're in your early 60s and close to retirement, you'll want to be more conservative, with more in CDs and bonds and less in stocks or stock mutual funds than you had in the past.
Also, make sure you have enough life, health and disability insurance, which are investments that can protect your family's finances from a major setback.
3. Take advantage of the tax breaks. Try to contribute all you can to 401(k)s because the earnings are tax-deferred, certain contributions may reduce your taxable income, and many employers even add money to your account as an extra incentive.
4. Give your retirement accounts a periodic checkup. Monitor your retirement accounts at least once or twice a year. Perhaps you'll want to "rebalance" your portfolio if, because of market fluctuations, your holdings have become too heavy or too light in a certain type of investment. Or, maybe you'll decide to increase your retirement contributions if the accounts aren't growing as you expected.
5. Plan a strategy for when and how to tap your retirement funds. It's important to know when you are eligible to withdraw from retirement savings and collect Social Security benefits, how much you can withdraw and collect, and the tax implications. This kind of information can help you make smart decisions about such matters as where to put most of your retirement savings and when you can expect to retire.
6. Professional financial advisors can be helpful, but choose one carefully. Many professionals call themselves "financial planners" even though their qualifications and services may differ significantly. "Try to find someone knowledgeable and reputable-someone who will take the time to make recommendations that are suitable for your needs," says Ed Silberhorn, an FDIC consumer affairs specialist.
Skowhegan Savings is now offering retirement planning and investment services through Skowhegan Financial Services. Click here to find out more about how a financial planner can help you build your nest egg.
