Planning can help you achieve a comfortable retirement. Here are five suggestions to consider.
- Start a retirement savings program as early as possible and contribute regularly. The longer and more consistently you contribute, the larger your nest egg will become, even before the compounding provided by growth and earnings. Regular, reasonable deposits wisely invested will easily outgrow sporadic and insignificant contributions.
- Deposit your funds in tax-deferred accounts. Invest in tax-deferred accounts to the greatest extent possible. If your employer offers a tax-deferred plan, such as a 401(k), contribute as much as you can, particularly if the plan provides matching funds. Investigate individual options, such as IRAs, for additional planning opportunities. Why? One of the advantages of tax-deferred accounts is that investments that aren’t reduced by taxes will grow and compound at a faster rate. Other advantages include the ability to control your withdrawal rate and the amount of any accompanying tax, and the opportunity to postpone recognition of taxable income until retirement, when you’ll likely be in a lower tax bracket.
- Establish an investment plan. As funds within your retirement accounts accumulate, you’ll have to decide how to invest them. Establish an investment plan as early as possible. Then follow your plan consistently, revising only enough to keep matters on course, correct for deviations, and respond to unexpected events.
- Track your portfolio and rebalance as needed. Maintain a balance among growth, income, and short-term investments, and adjust the ratios as you age. The standard rules of thumb: When you’re under forty, consider investing more heavily in moderately aggressive growth vehicles. In your forties and fifties, you might want to become more conservative, shifting your balance toward income-generating investments such as high-dividend stocks.
- Once you’re retired, plan withdrawals so your funds will last the rest of your life. To avoid running out of funds, plan for a long retirement. Postpone withdrawals as long as possible, and pay them out carefully. Calculate a workable percentage to withdraw from your portfolio on an annual basis. Assume your funds will need to last at least thirty years. Continue to revisit your investments each year to monitor and rebalance as needed.
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