Since saving for retirement is one of the most complex tasks that every person confronts, there is no way to overstate the importance of starting early. Doing so will help you maximize the amount of money in your retirement many years down the road. It is also imperative that you dedicate yourself to learning some valuable strategies for boosting your retirement savings. To get a better understanding, consider the following five things that you should already be doing.
Planning for the Age of Your Retirement
According to Ram Lee, who is a partner at Seven Bridges Advisors, you must start by figuring out the age when you hope to retire. As someone who has managed multi-billion-dollar portfolios in his career, Mr. Lee has a long track record of growing investments. In the vast majority of cases, however, his largest gains came from assets which were held for a long time. While there are benefits to trading rapidly and selling securities each day, it is not an approach that will be optimal for retirement.
So, when trying to figure out the age when you want to retire, you should account for the fact that it might take a few decades for your savings to truly grow. Thus, the later that you start saving, the later you will be able to retire. If you already have an account that has been building interest for a decade and you are only 28 years old, per se, there is a good chance that you will retire long before you reach your 60s. With that in mind, always remember that the most common age that people stop working is 65. This is when they become eligible for Medicare, and a few years after becoming eligible to receive Social Security.
Communicating with a Retirement Planner
Regardless of how familiar you might be with the process of retirement; you will not know everything unless you work in the finance industry. After all, there is a reason why people who work as retirement planners can build lucrative careers around this field. Therefore, you should find someone who will counsel you. Unlike your employer’s retirement plan advisors, individual planners do not focus on the overall company or many other employees. Their sole purpose is to help you meet your goals and be able to retire on your terms.
To find a good planner, you should start by conducting some online searches for local experts in finance. Once you put together a list of eligible candidates, you can begin making calls to see how they respond to inquiries. Eventually, you will narrow down your list to two or three alternatives, and you will need to visit each of them for a face-to-face interview. Doing so will help you touch on some important topics about your retirement. Afterward, you will select the specialist with whom that you feel comfortable. There are also good online retirement advisors, that are quite inexpensive, but many people will want more personal interaction.
Understand Social Security and Retirement Accounts
Ram Lee further advises everyone who wants to retire to learn the basic rules of social security and retirement accounts. For example, the Internal Revenue Service levies a penalty on any early withdrawals of funds from a traditional individual retirement account, or IRA. The penalty equals to 10% of the amount; so, if you retire at age 55 and withdraw $40,000 for the year, you will instantly lose $4,000 because the government will penalize you for not waiting (in additional to having to pay taxes). Another rule that seems confusing is that you can borrow from an employer sponsored 401k program, but not from an individual IRA account. Some people borrow from their 401k, which is likely borrowing from yourself and paying yourself back with interest, in order to get a down payment for a house or other large purchase.
Similarly, you should know the laws about your Social Security benefits and Medicare. For example, you will not normally be eligible for Medicare until 65 and Social Security at 62; but if you take benefits at that time the amount you receive will be lower than if you wait until the current full retirement age of 66. Your ‘full retirement age’, the age at which you can earn 100% of your social security benefits, will depend upon your year of birth.
Maintain a Diverse Portfolio
After successfully investing very large multi-billion dollar portfolios, Ram Lee advises everyone to have a diverse portfolio. Since the vast majority of retirement accounts are portfolios anyway, the same principle applies. This is incredibly important because it will allow you to minimize the risk of losing any of your funds due to individual security or company downturns. If you have all of your investments in high-risk companies that specialize in innovation, for example, a downfall in the technology industry could destroy your savings. Instead, make sure that you have a wide variety of securities that cover a diverse range of sectors and investment styles.
Also, remember that you should leave most of the high-risk, aggressive investing to younger individuals. Unless you are still in your 20s or 30s, you need to focus on low- or medium-level returns that come with safe assets. Doing so will help avoid large losses that you may not have enough time to recoup before you need those assets for retirement.
Contribute to a 401(k) and Always Take the Employer’s Matching Offer
Finally, always contribute to your 401(k), and never leave any money on the table by passing on an employer’s offer to match contributions. If your company matches the first $4,000 of your annual contributions, for example, investing anything less than that would mean that you are ignoring free money. Regardless of how challenging it may be to invest a large portion of your salary, keep in mind that losing out by passing on the matching offer is much worse in the long run. If your company does not have a 401k, then contribute to an individual IRA.