I know the headline says "non-stupid" retirement tricks, but just so you know what I'm not going to be talking about, here are three stupid ones:
- Work longer.
- Downsize your planned retirement life.
- Start buying lottery tickets.
Um, only one of those is really stupid
True. But -- speaking as your humble writer, here -- articles that promise you ways to "fix your retirement" in the wake of last year's swan dive by Mr. Market and then tell you to "work longer" aren't particularly helpful. We all know that if you work until you're 75 instead of retiring at 65, that's 10 years of not-retirement that you don't have to fund with your IRAs, right?
And likewise, we also know that if you downgrade your retirement aspirations from "travel the world in style" to "have something other than mac and cheese for dinner once a week," you'll be able to retire on less. Of course, you might prefer working, but hey, some folks like mac and cheese, and you could always grab some Kraft Foods (NYSE: KFT ) stock for that IRA. (Actually, being serious for a moment, Kraft's 4.5% dividend yield looks pretty appetizing.)
I trust I don't have to explain the lottery thing.
So, what are the non-stupid ideas, smart guy?
I'm glad you asked. In truth, there aren't any magic ways to recover from last year's losses. Mr. Market is going to do whatever Mr. Market wants to do. What we can do is put ourselves in the best possible position to take advantage of whatever he offers us, and that's what these ideas are about. So, without further ado:
Get out of that 401(k)! No, I'm not suggesting that you bail out of your current employer's retirement plan. I'm suggesting that you bail out of past employers' retirement plans, if you've still got balances in any of them.
Here's why: In a 401(k) (or 403(b)), you've got a limited number of investment options, most of which are probably on the conservative side. A few of those options might be pretty good, and you might be able to pick up a decent core fund with big stocks like Apple (Nasdaq: AAPL ) , Cisco (Nasdaq: CSCO ) , or Johnson & Johnson (NYSE: JNJ ) .
But "pretty good" isn't what we want -- we want (and need) the best possible portfolio we can assemble. For that, we need to be in an IRA, where we can buy stocks directly, bypassing funds to make direct investments in companies from the big names above to small gems like commercial-oven maven Middleby (Nasdaq: MIDD ) or Wi-Fi gear innovator Alvarion (Nasdaq: ALVR ) .
Any discount broker will be quite pleased to help you roll those old balances into a Rollover IRA. Once you've done that -- or if you already have a sizable IRA balance -- you'll be able to take maximum advantage of the next idea.
Be sure you have the best available investments. Getting into an IRA is a big step toward this goal, but even if most of your money is in your current employer's 401(k), it's still worth taking a hard look at what you've got. Are you choosing high-performing mutual funds with long-tenured managers and low fees? Are you invested in stocks of companies you understand, with strong growth prospects or solid dividends or that you bought at an attractive discount?
On the flip side, are you holding a big position in your employer's stock? It doesn't matter whether your employer is General Motors or Google (Nasdaq: GOOG ) -- it's still a bad idea. Are you still holding investments you selected years ago, waiting for them to "come back" before you sell? Another bad idea; here's when to sell. Today is the day to move from the portfolio you have to the portfolio you want -- spend the time to figure it out, and follow through.
Get the rest of your financial life in order. Yes, this counts! Do you want to be carrying a ton of credit card debt when you retire? Do you want to be blowing that much money on interest? Are you still living month to month or spending more than you earn?
Part of rebuilding your retirement nest egg will involve saving as much as you can afford. If you're not carrying any revolving debt and you're spending less than you earn, you can afford more. Make it a priority to get to the point where you can afford to contribute the legal maximum to your 401(k) and IRA.
Last but not least, stay informed, and stay on track. If you're like me and you get a headache when people (yeah, people like me) tell you to get your financial life in order without offering you a detailed plan, take a few minutes to check out the Fool's Rule Your Retirement newsletter.
Throughout 2009, Rule Your Retirement is presenting the "Year of Fiscal Fitness," with simple monthly to-dos that will leave you in the best possible shape to maximize your retirement investing. It's an easy and fun plan to follow. You'll be amazed at how much progress you can make with just a little bit of time invested each month.
Not a member? A free trial gives you 30 days of full access -- plenty of time to check out all of the installments to date and to get rolling on your own retirement recovery efforts. Signing up is simple, and there's absolutely no obligation. Click here to get started now.