The Top 21 Retirement Secrets
Are there really retirement secrets that will make the process of planning for your retirement easier? Well, that all depends upon how you view retirement planning. Do you have a love-hate relationship with retirement planning?
You completely comprehend that saving for your retirement is a necessary evil, right? But, finding the money to save can seem like such a chore. Planning for retirement is a process. And it’s not uncommon to run into a little frustration. So if you are frustrated, you’re not alone. Some people place great value on socking away lots of money during their working years for the benefit of their retirement years. Most folks love the idea of living a dream retirement someday when they no longer want to or feel like working. But a lot of people hate the idea of trimming back their current spending habits in order to save money for some time in the future.
Does that sound like you? Does retirement planning seem like an all or nothing proposition; a love-hate relationship so to speak. Stop. Take heart. It does not have to be that dramatic or drastic. Sometimes our biggest projects get accomplished when we take a new approach. The best way to avoid retirement planning struggles is to simply create a game plan for yourself. Think back, anything you succeeded at most likely started with a game plan didn’t it? So why should saving for your financial future, your retirement years be any different? If you want to be successful at retirement planning, design a game plan that wins. The following retirement secrets will help you do that.
Secret #1 – The First Time
One of the retirement secrets that’s often missed is a big one. The best time to start investing for your retirement is when you start your very first job. It has to be a job where you receive a W2 form (therefore that excludes babysitting or lemonade stand profits). When you start that first job start your contributions as soon as you possible can, regardless of how old you are. Why? Because the earlier you start developing the financial habit of investing the better off you will be over the long run. By the time you are fully into your career you will not even miss the money you habitually invested over the years. You will have adjusted your lifestyle accordingly. Sounds too easy, right?
Secret #2 – Seize The Moment
The second best time is right now, why wait? Invest early and invest often. If you missed the opportunity to begin investing when you started your first job, no big deal. It will be a big deal though if you miss your second opportunity, which is right now. Just do it, don’t delay, start saving.
Secret #3 – Maximize The Freebie
If your employer offers to match your retirement plan contributions they are essentially giving you free money. That is a huge opportunity. So maximize that freebie, contribute as much as you can. The more you contribute (up to the employer limit) the more free money you get. How great is that. Can you really turn down free money?
Secret #4 – Utilize The Magic of Compounding
Make your money work for you by using the power of compounding. Time is the key component of compounding. It may sound like a fantasy that your money can grow, but it is true. Your money grows all by itself with little help from you when compounding gets working. Compounding is simply interest added to your principal balance again and again and again. So, the longer your money is invested, the better.
Secret #5 – Never Stop
Markets go up and down, do not get discouraged. Set your investment strategy and stick to it, year in and year out. Following an investment strategy keeps you investing regardless of market fluctuations. Besides, until you actually start withdrawing the funds from your retirement account, any losses are just paper losses just printed on your statement. So keep your emotions in check and follow the course you’ve set.
No two investors are alike; personalize your investment strategy according to your own investment goals and objectives. Your financial goal may be to work forever while your brother-in-law’s goal is to retire as soon as he can possibly afford to. It’s okay, both goals are worthy goals. Just be sure to strategize according to your goal, not someone else’s.
Secret #7 – Buy High And Low
Dollar cost averaging means that you buy when the stocks and/or mutual funds are priced high and low, thus averaging out your overall cost. The way you dollar cost average is you buy the same fixed amount of a specific stock or mutual fund on a regular basis, regardless of the price of that investment.
Secret #8 – Risk Is Not A Bad Word
There are no right or wrong levels of risk; become comfortable with your personal level of risk. Do you know how much investment risk you can tolerate? If you worry all the time about your investments dropping in value or lose sleep over your investment choices then you may need to reevaluate your investment risk.
Secret #9 – Know Your Stuff
Understand the investments you put your money into before investing. If you are clueless about commodities then do not invest in them. Always choose investments that you understand otherwise how will you know if you should stay or go? Many inexperienced investors have lost substantial amounts of money due to lack of knowledge about their investment choices. Do yourself a favor, chose wisely.
Secret #10 – Spread It Around
A diversified portfolio is a balanced one. To give your investment dollars the best chance of performing well, spread that money amongst different asset classes and market segments. What does that mean? It means to avoid investing all of your money into one type of stock or mutual fund. Also, spread your investments into different market sectors…healthcare, financial, industry, retail. And be sure to check out large, mid and small cap. Never become locked up on one and only one investment, it does not make good financial sense.
Secret #11 – Time It
Be aware of your personal retirement time line. Before you can achieve a goal, you first need to know what that goal is, right? If you have a date or retirement age you want to retire by you will have a target to aim towards and feel great about your investment successes.
Secret #12 – Allocate
Your time line will determine how you allocate your assets. As you get closer and closer to retirement your investment assets become more valuable to you because you want to preserve them from market drops. Therefore you will be more likely to choose safer investments to keep your nest egg safe. When you are just starting out you can choose more aggressive investments since you have a long time to rebound from any drops in value.
Rebalancing your portfolio will help you to stay within your investment objectives. When you rebalance your portfolio you are keeping your investment percentages the same. For example let’s say you have 50% of your portfolio invested in stocks, 30% in bonds and 20% in cash. If stocks outperform bonds and cash, your portfolio may become lopsided and end up holding 60% of stock instead of the 50%. To stay on target with your investment objectives rebalancing will bring the weight of the stocks back in line.
Secret #14 – Loans Are Out
Your retirement plan should be off-limits for any type of loan. Make a promise to yourself to keep the money that you invest into a retirement account earmarked for your retirement years only. When you are older and no longer feel like working you will be so relieved that you did not touch your retirement investments.
Secret #15 – Roll It
Instead of cashing out your retirement plan when you change jobs, roll the money over to your new employer’s retirement plan. When you cash out a retirement plan before age 59 1/2 you will pay taxes and a 10% penalty of that money. Do you really want to do that?
Secret #16 – Calculate It
Use a financial calculator to help determine your financial targets. Financial calculators give you a perspective with a commitment only to yourself not a commitment to a financial advisor. These calculators are impartial; they just tell you the facts based on the figures you put in.
Secret #17 – Change Creates Change
Never stop evaluating your investments. Your financial goals and needs change as your life changes and your life is constantly changing. Changes such as new jobs, a new family, unexpected health care needs and maybe an unplanned divorce will change your investment mix. Your balance of stocks, bonds and cash within your investment mix may need some adjustments based on big and small changes in your life. Keep your investments on course with those changes.
Secret #18 – Keep Up With Expenses
Mutual fund companies, brokerage firms, brokerage websites and banks all charge fees for services rendered. And that is okay. Just be sure that you know what the fees are that you are being charged and that you are comfortable with them. Ask questions. Check the prospectus or visit the company’s website. Use that fee information to make good investment decisions.
Secret #19 – Automate When Possible
If you automate your investments you take some control (and emotion) out of your investment decisions. Having money automatically invested before you get your hands on it to spend will save you a lot of money over the years.
Secret #20 – Boost Your Savings With Ease
Investing some of your bonuses, raises or tax refunds is one of the simplest ways to increase your savings. It’s easy to get tempted to spend all that new money, but invest a bit first before going on a spending spree and you will be glad you did.
Secret #21 – Enjoy The Ride
Retirement secrets are not a secret if you stick to the basics. If you create a financial game plan, stick to it and invest on a regular basis what is there to worry about? Investors get into financial trouble when they lose their focus. If you start to forget about why you are saving, review your game plan. Preparation for retirement involves more than dreaming about all of the things you’ll get to do; it requires financial discipline throughout your working years. But don’t make it a chore, otherwise it becomes like a diet and who likes diets?