This week we are going to look at your retirement savings to make sure that they are on track. Planning and saving for your retirement is one of the most important things that you can do. If you begin saving early, you can allow your money to work for you. This means that you will reach a point where the interest that your retirement is earning will be more than your contributions and then your retirement savings will grow quickly. If you are thinking about early retirement, you will also want to save for retirement outside of traditional retirement accounts so that you can access the money before you are 59 1/2.
First, if you do not currently have a retirement account you need to open one. The only exception is if you are in college and living on student loans. If you are working your way through college and have the extra money, then you should contribute, but if you really do not, then just plan on doing this as soon as you graduate. Your employer may offer you a retirement account, such as a 401(k) or a 403(b), as soon as you begin working, but many employers will not let you begin contributing until you have worked through a probationary period. You can still open a Roth IRA and contribute that first year.
2. Types of Investments
Second, you need to look at what you are investing in. Most employers offer a choice of different risks in which you can put your money. These are usually high risk, medium risk and low risk options. The higher risk options generally yields a higher rate of return. When you are in your twenties and thirties, you should have the majority of your contributions go into the higher risk category. You will have to time recover if the market crashes. If you are contributing to a Roth IRA or a traditional IRA, then you should look for mutual funds with a good track rate and high interest rate.
Third, you need to consider how much you are contributing to your retirement. You should aim for fifteen percent of your income. However, if you still have a lot of consumer debt you may want to just contribute up to your employer's match and focus on getting out of debt quickly. Then gradually raise the amount that you contribute. You can do this when you get a raise or increase it by a percent or two a year. You may be surprised to realize that raising your contributions will not change your take-home pay as much as your originally thought.
4. Stay Focused
Finally, it is important to contribute to your retirement consistently and then leave it alone. Do not panic if the market goes down. The way to make money is to ride out the good and bad times in the market. Do not try to play the market with your retirement savings. The best thing you can do is choose sound long-term investments and leave it there. As you near retirement age then you will need to transfer your investments into lower risk investments.
If you are interested in investing in the stock market or opening your own retirement account then you may want to talk to a financial planner who can help you find the best accounts for your need. A good financial adviser can help you out when you are panicking about changes in the market.