When investing for retirement, you're likely to hear a lot of well-meaning guidance from family, friends, and others offering advice--even the media. Here are some things to consider:
Pay Yourself First
It's hard to argue with this conventional wisdom, which helps make saving a habit. This can be through a retirement plan through work or other, but having the money automatically deducted from your paycheck and invested in your plan eliminates the temptation to spend before you save.
Don't Get Overly Exuberant Over The Recent Stock Market Performance
During strong bull markets like we have had recently, it's tempting to put lots of your eggs in the best performing idea we can find. The market is only going up from here - is the mentality. While there are a few different rules of thumb for stock allocation percentages, its best to seek out reputable online tools or advice from a professional to find your best risk tolerance level. It's usually never a good idea to just do what your friend is doing.
Save 5-15% Ogf Your Current Income For Retirement - And Get The Employer Match
The range depends a bit on your age and when you start. If you start late, you may need to shoot for the absolute maximum allowable amounts to make up for lost time. On the other hand, if you are in your 20s and facing a mountain of school loans, you may want to start at a lower percentage of pay--say 5% or 6%--until you can afford more.
Regardless, always contribute at least enough to receive the full employer match.
Save Enough For A 4% Withdrawal Rate
How much will you need to withdraw from your account(s) each year? The percentage you withdraw annually from your savings and investments is called your withdrawal rate. A common rule of thumb states that a withdrawal amount equal to 4% of your savings each year in retirement (adjusted for inflation) will be sustainable.
From here you can determine how much you can afford to live on. For example, if you have $1m dollars saved, you can live on $40,000 per year ($1m * .04). If you don't think this is enough, then can do the math backwards to discover what you retirement goal looks like: Annual Withdrawal ($) / .04 = Total Savings Plan Target.
Do SOMETHING - Even If It's Small
While these tips offer some basic ideas for retirement savings, they don't work if you don't act on any of them.
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Securities offered through Royal Alliance Associates, Inc., member FINRA/SIPC. Advisory services offered through Focus Financial Network, Inc., a registered investment advisor. Royal Alliance Associates, Inc. does not provide tax or legal advice.