Over the next few days -- as you grab the popcorn and hot chocolate, settle in front of the TV, and watch the games -- you're probably not going to be thinking about the Olympics and retirement.
Most of us aren't particularly excited about seeing the biathlon races in prime time, either -- but we'd be lucky to see the highlights. Why? Because the biathlon can teach us a lot about planning for retirement.
Think a sharp-shooting contest on cross-country skis isn't going to be all that entertaining? (Hey, Europeans watch the biathlon on TV in droves.) Don't change that channel just yet. Saving for retirement is a lot like hitting those multiple targets. In the biathlon, you might have a 7.5-kilometer sprint with two stops to shoot at several targets, or perhaps a longer race with four stops. With retirement planning, you must also think in terms of stages and you'll need an equally diverse array of skills to meet your goal.
Put retirement in your sights
It's a long haul, so think about setting targets when you get that first job, adjusting your goals when you get married, whenever you change jobs, or when kids come along. Or think about your retirement savings at 30, then at 40, and at 50 . altering your investments as you're slogging along. (For many of us, alas, it will feel like a slog, unlike those fast, skilled, and accurate biathletes.)
If you fall behind, there are plenty of ways to make up for it, much like the way biathletes ski an extra loop or have extra time added if they miss a target.
Was that the starting gun?
On your mark, get set .
First, calculate how much you'll need. Robert Brokamp, editor of the Rule Your Retirement newsletter, notes that most people will need to rely on Social Security, their pension, and personal savings to fund their retirement. It is recommended that you plan on withdrawing only 4% of your savings each year for living expenses after retirement. You don't need to be a mathematician to see that you'll need a pretty big nest egg to afford a nice lifestyle.
As you develop a strategy to grow that nest egg, be sure to consider your time horizon based on your current stage of life. Younger investors might want a larger allocation to equities, while older folks might start shifting the balance in favor of fixed income securities.
IRAs and 401(k)s
Never mind all those k's in the names of Nordic Olympians. Jump into the most important k once you've started working, and contribute as much as you can, especially if you have an employer match. And definitely take it with you when you leave a job. Stocks? If you're young and ambitious, you'll have plenty of time to learn about stocks and benefit from their returns. To get your skis wet, try low-cost exchange-traded funds such as SPDRs (AMEX:SPY), which tracks the S&P 500 and comes with a mere 0.11% expense ratio; Diamonds (AMEX:DIA), which tracks the Dow Jones Industrial Average and carries a 0.18% expense ratio; or the worldly Vanguard Emerging Markets Stock VIPERs (AMEX:VWO), which sports investments from China to Israel to Brazil and costs you just 0.30% a year.
Roth IRAs and Roth 401(k)s
As you enter your peak earning years, look into the Roth 401(k). Check with your employer to see if you can contribute to this new retirement savings plan that allows contributions no matter how high your income. Four targets down. One more left.
One last stretch
Now that you've been on course for decades, working toward the not-so-distant day when you'll retire (and get to do a lot more skiing, without that rifle strapped to your back), it doesn't seem like you've been plodding all that long, does it?
Maybe you've missed a few targets, or your race was that 7.5-kilometer sprint. Either way, you're almost finished. Once again, you might want to revise your investment policy statement and asset allocation.
Way to cross that finish line! Snow never tasted so good.
Before dropping those skis and poles -- and that rifle -- click here to see what else Robert Brokamp offers in Rule Your Retirement. You'll find it's not heavy at all.
The Motley Fool can help with all types of investing. If you subscribe to Rule Your Retirement or any other newsletter for a year, you'll get a free copy of Stocks 2006 , our top analysts' picks for the year ahead.
Foolish editor Lee Barnes watched the men's 12.5 kilometer pursuit and enjoyed every minute of it. She's also watching where her retirement money goes; a little of it is in the Vanguard 500 Index, but none is in any of the other funds above. The Motley Fool has a disclosure policy.
