| Now that we've celebrated
Labor Day and reached the unofficial end of summer, this is the
perfect time of year to assess where you are in the retirement
planning process. Here are 10 tips from Fidelity Investments to help
you develop a sensible savings plan.
1. Start saving now. Even
small amounts can add up. By contributing through automatic
deductions, saving for retirement won't seem like a chore, and you
may benefit from dollar-cost averaging.1
2. Know what you own.
Take inventory of your accounts and know how much money you've
saved. Rolling over multiple retirement savings accounts (such as
401(k)s) from previous employers into one IRA can make it easier to
track your retirement investments all in one place.
3. Know how much you'll need. Some
experts say that investors may need to save 25 times their first
year withdrawal amount. Setting aside an appropriate amount now from
each pay check can help you better fund your retirement. Also, don't
forget healthcare costs. The average 65-year-old couple retiring
today will need $190,000 to cover medical costs over the next 15 to
20 years.2
4. Develop a plan.
Organizing your goals will help you to know how best to achieve
them. Make sure to put your plan in writing, and tap experts to help
you reevaluate your strategies as your goals evolve.
5. Establish an emergency fund.
Ideally cash, this money should be worth six months or more of
expenses. It can help you get through emergencies so you're not
tempted to dip into your retirement savings.
6. Manage spending and debt. You
can find extra cash to invest in your future by refinancing auto or
personal loans at lower interest rates, paying off credit card debt
and limiting future purchases.
7. Contribute, max out and catch
up. Make retirement savings a priority by taking
advantage of employer-sponsored retirement plans, like 401(k)s,
including company employer match provisions. Other tax-efficient
accounts, such as IRAs and annuities, may also be right for you. If
you're over 50, you can catch up with even more tax-advantaged
savings opportunities.
8. Invest properly and stay on
track. Make sure your investments are diversified
across stocks, bonds and cash and that allocations reflect your
goals, age and risk tolerance. Help stay on track by monitoring your
portfolio at least quarterly, rebalancing assets if appropriate.
Also, consider life cycle funds that are more aggressive when you're
younger and get more conservative as you near retirement.
9. Assess your risks. When
developing your retirement plan, be sure you address the five
financial risks that can derail your retirement: 1) underestimating
longer life-spans; 2) neglecting to plan for health care costs; 3)
failing to account for inflation; 4) adopting overly cautious or
overly risky asset allocations; and 5) drawing down assets too
rapidly.
10. Identify your income stream.
Some experts say that investors may need between 85 to 100 percent
of their pre-retirement income when they retire. Create an income
strategy to cover your retirement expenses by determining your
future Social Security and pension payments and other potential
income sources. Being as conservative as possible, determine how
much you'll need to withdraw each year from your investment
portfolio, and when you can withdraw money from retirement accounts
without penalty. You may also want to consider supplementing your
income with an annuity.
1 Periodic investment plans do not assure a
profit or protect against a loss in a declining market.
2 Assumes no employer-provided retiree health coverage and
life expectancies of 15 years for a male and 20 years for a female.
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