Monday, 4 May 2015

Congratulations! You've taken the first step in retirement planning. 

By opening an IRA or contributing to a 401(k), you're preparing for a secure future. You're watching your retirement savings grow, and you might even be dreaming about where you'll live during your retirement. 

But the next step is to set aside time on a regular basis to think about how to maximize the potential of your retirement account. Reviewing your retirement portfolio will help you pace yourself and ensure you're on track to enjoy your golden years.

Make time for an annual review

Take a look at your retirement portfolio at least once a year. The review process forces you to make sure you're on the right track toward your retirement goals, and allows you to make adjustments along the way if necessary.

Review your contribution level

Are you contributing the maximum allowed for your age group? Once you turn fifty, the IRS allows you to make additional tax-free contributions.Visit the IRS website to see how much more you can contribute based on your age, your earning level, your marital status, and whether you already participate in your company's retirement plan. If you have a 401(k) through your employer, check with your human resources office to see if the company matches your contribution—remember, this could be free money for you!

Consider rebalancing

Rebalancing is a fancy financial term for making changes in your investments. The goal in rebalancing is to ensure you have a good mix of assets. Resist the temptation to invest all your money in a single stock, or even in a particular sector of the stock market such as high tech. The vagaries of the market and other economic factors make putting all your eggs in one basket way too risky.

Make sure your investments are "age-appropriate"

Some investments like high-growth stocks are considered more "aggressive;" they carry higher risks and greater rewards than others. Some investments, such as U.S. Treasury bonds, are considered "conservative;" these are low-risk investments and generally offer lower returns.

In your forties and fifties, experts suggest that you gradually start moving to a more conservative investment portfolio than you might have used when you were younger. Examples of conservative investments might include stocks with consistent dividends, mutual funds, or bonds. As you get closer to retirement, you may want to be even more conservative to protect yourself if the market takes a downturn.

When you're growing your retirement nest egg, re-evaluate your investments on a regular basis and make adjustments when needed. Talk to an investment advisor to evaluate your circumstances and get the right mix for you.

Protect your retirement account(s) against inflation

Your retirement savings need to take inflation, or "the cost of living," into account. If you estimate that your cost of living will increase by about 3 percent every year, you'll need your retirement money to grow at least 3 percent per year after retirement, too. One way to offset the cost of inflation is to invest a portion of your money in stocks that have historically kept pace with inflation. Consider investing in inflation-fighting annuities as well.

Don't agonize over every defeat

The stock market is like the ocean—it advances and recedes like the tide, and so it will go with your investments. This is normal, and to be expected.

Equity funds can be an excellent way to diversify your portfolio. Some (but not all) bonds or bond funds offer a way to grow your retirement account with relatively lower risk. But keep in mind that just like the stock market, bond prices can increase or decrease in value, too.

The best way to handle the ebb and flow of the market is to get advice from a certified financial planner so you can make an informed decision.

It's never too late

If you're like most Americans, you probably haven't saved enough for your retirement. Worrying will not help, but getting serious about saving for your retirement will. If you're in your fifties or early sixties and you've fallen behind, it's time to sprint for the finish line. It's crucial that you intensify your efforts, and the good news is that tax law is on your side—the IRS allows additional tax-free deductions to some retirement accounts for those age fifty and older. Check the IRS website for specifics.

Placing more of your retirement funds into risky investments is not an ideal way to catch up. Instead, put more money into your retirement accounts if you possibly can. Remember—no one is going to lend you money for your retirement.

No matter how much or how little money you can save for retirement today, the most important thing is that you get started.

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