You need to think about your personal goals and needs, before you make any decisions regarding your retirement savings.
How do you want to spend your retirement years? Do you want to travel, buy a new home, and move into a retirement community? Do you want to spend your time with family or dabble with some long lost hobbies? Deciding how you want to live is the first and most important step before deciding how much retirement savings you will need to live comfortably.
Studies indicate that you will need 80-100% of your pre-retirement income to maintain your current lifestyle. In theory, certain expenses you have now may be eliminated or reduced, but it depends again on your personal goals for the future. You may own your home outright, but if you want to travel more expenses will be incurred. The better prepared you are the more stress free your retirement will be. Your employer or the company, in which you have invested your retirement saving with, will have calculation worksheets that will help you better understand your goals and needs.
Steps towards your retirement savings goals:
Income needed during your retirement Social Security Income Annual retirement income Future retirement income Retirement goals Current investment portfolio Percentage of your annual income your can afford to save for your retirement, including any employer matches.
Retirement savings goals and income needs vary depending on what stage of your life you are in when you decide to start saving. Lifestages, as they are called, are the periods during your retirement savings plan in which you need to re-evaluate your current investments to see if your needs have changed and what if any action may need to be taken.
Any retirement savings plan has a certain amount of risk associated with it, therefore you need to know what kind of investor you are going to be.
There are five categories from low to high risk investing:
Stable: You want guaranteed interest from your savings, such as money market accounts. Conservative: You will invest in Government Bonds, Securities, and Mortgages. Moderate: You feel comfortable investing in large Company Stocks and Real Estate. Aggressive: Small company stocks and start-ups. Dynamic: International companies and stocks.
There are different contribution options available that help to reduce the risk associated with any kind of investment. It is called Diversification. Diversification retirement savings options allow you to spread out your investments. If your more aggressive investment options were to lose money, the lower risk options would help minimize the loss.
You allocate retirement savings fund among different investment options. This makes your savings more diverse and you make the decision on the level of risk you are comfortable with. Again the company you are working with will have the information you need to help you make the right decision.
A quick note: Company services are a very important part of your retirement savings decision. Look for:
Rollover policies and services. Retirement Savings Plan Statements and Reports. Accessibility to account information. Education Services that explain and answer all your questions and help you in time of need.
With information in hand, you will be confident enough to feel secure regarding your retirement savings plan.
