Retirement planning involves more than just saving some money, opening an investment account and contributing some money each month. There are serious questions that need to get answered and a lot of thought that needs to go into those answers. Avoiding mistakes while setting up and using your retirement plan can pay off big time in the end.
Too many people take a casual approach to their long term retirement savings plans. Using a retirement calculator to determine how much you will need to save and what rate of return you will need to shoot for over a specified period of time is probably the most important first step. You need to have a few pieces of information available such as how much money you will need each year in retirement in addition to social security benefits and/or pension payouts. How long will you have to accumulate your retirement savings investments and what level of risk are you willing to take to get the level of returns you will need to meet your retirement goals? These retirement calculators are available on-line in many configurations and should be able to provide you with the answers to all your questions if you input the proper data.
Next, you will need to decide what types of accounts you want to use for your retirement savings investments. The stock market is the primary vehicle used by most people because if used properly it's one of the few ways to produce the returns necessary for most people to meet their investment goals. Investing in so called "safe investments" such as savings accounts or bank CD's paying rates currently less than 2% is disastrous if you want to grow your money. Inflation will more than eat up any profit made in this type of account.
Avoiding paying taxes on this money during the accumulation phase also has pronounced effects on the long term performance of your retirement savings portfolio. Using a 401K, Roth IRA, or traditional IRA are the most used products to minimize the tax bite and the advantages and disadvantages of each can be discussed with your financial planner or other financial adviser. It is also advisable to think about the tax consequences of withdrawal of the funds so as to pick the right plan from the start.
Avoid excess costs of investing by using a discount broker service, and if using mutual funds for some of your retirement savings investments, buy them directly from the fund company to avoid paying commissions. Compare fund fees when deciding which funds to invest in and make sure you are not paying excessive fees since they can reduce your overall rate of return. The more managed your account has to be, the more costly it is to maintain, thus reducing the amounts you have available to earn profit.
Use a portfolio that takes advantage of proper diversification and allocation of your assets so as to smooth out some of the natural market ups and downs over the course of your investment period. After all, you don't want to be kept awake at night constantly worrying about your retirement savings accounts and what is happening on a day to day basis.
If you are the type of person who really doesn't understand much about the stock market and doesn't want to have to pay too much attention to their portfolio, then consider taking a look at a program I developed that can deliver above average returns but keep risk levels relatively low. The portfolio needs only an annual check up and adjustment to bring the allocations back into line with the programs recommendations.
Most important of all is to start that retirement savings plan as early in your earning career as possible. The longer money has to compound, especially in a tax advantaged account, the more money you will accumulate over that time. You don't need a lot of money to start. If are having trouble coming up with money to save, take a look at my free report which helps you discover money you already have but just may not know where to look. You can find information about that free report on my website. The key is to just get started and try to make your saving consistent over the long haul.
