You managed to put on a shirt that isn't too wrinkled, made lunches for the family that weren't too unhealthy, dropped the kids off at school without being too late, and got to work without being too frazzled.
As if you have time to now plan for retirement.
It's probably your biggest financial goal -- once kids, shirts, and lunches are covered -- yet you never find the time to really plan your retirement.
Relax. I'm going to tell you almost everything you need to know about retirement, right now, in about five minutes. Ready? Here goes.
1. Contribute to the right accounts.
If your boss matches your contributions to your retirement plan at work, save as much as possible to take full advantage of that benefit. I'm sure your employer loves you and all that, but if he/she/it wants to help you retire, don't look a gift boss in the mouth. Plus, contributions reduce your taxable income, and the investments grow tax-deferred (i.e., you'll cut your tax bill). Uncle Sam wants you to retire, too.
Once you've taken full advantage of that easily had bonus -- or if your chintzy employer doesn't offer a match -- contribute to an IRA with a discount broker or low-cost mutual fund provider. You'll have many, many more investment options and pay much less in fees. (Just ask the folks at the Government Accountability Office about how much you're really paying for your 401(k); Congress asked them to conduct a study, and the results aren't pretty.)
If you're eligible for a Roth IRA -- i.e., if you're single and have a modified adjusted gross income (MAGI) less than $99,000 or married and have an MAGI less than $156,000 -- that's a great deal. The contributions aren't tax-deductible, but the investments grow tax-free. The same goes if you have a Roth 401(k) at work, but with no eligibility requirements.
2. Choose the right investments.
This one really trips a lot of people up. But don't let it stop you from putting a plan into motion. Just buy 3,650 stocks.
Sounds daunting? It's not. Just buy an investment like the Vanguard Total Stock Market Index Fund (FUND:VTSMX), which holds pieces of companies that include Johnson & Jonson (NYSE:JNJ), IBM (NYSE:IBM), Sina (NASDAQ:SINA), and Dow Jones (NYSE:DJ). If history is any guide -- and it's the only guide we have -- investing in the stock market is a long-term winner.
If you want to mix it up even more, perhaps throwing in some bonds and international investments, choose a "target retirement fund," an automatically allocated, regularly rebalanced mutual fund that we discussed in detail in a recent issue of Rule Your Retirement. For example, the Vanguard Target Retirement 2025 Fund (VTTVX) is approximately 80% stocks and 20% bonds, with investments as globally diversified as British banker Barclays (NYSE:BCS) and Taiwan Semiconductor (NYSE:TSM).
3. Save enough.
So, how much do you need to save? The easy answer is: as much as you can. A somewhat easier answer can be found in the following table, which assumes you have yet to save for retirement:
|
Your Age |
Percentage of Income to Save |
|---|---|
|
20s |
10%-15% |
|
30s |
15%-20% |
|
40s |
20%-30% |
|
50s |
30%-40% |
|
60s |
40%-50% |
|
70s |
50%-60% |
|
80s |
Vegas, baby! |
Once you find a few minutes of free time, use a retirement calculator to make sure you're on track. Our Rule Your Retirement service features a high-powered financial-planning tool that analyzes your current plan. You want to make sure your savings will lead to where you want to be, when you want to get there.
If you don't have a plan, and want to invest a bit more than five minutes to get one, then join us for the "How to Plan the Perfect Retirement" online seminar that begins Oct. 8. It's free to Rule Your Retirement subscribers (click here for more info). But even if you don't have time to create your own detailed retirement plan, taking the three steps outlined in this article will set you on the right path.
This article was first published June 7, 2007. It has been lovingly updated.
Robert Brokamp, advisor of the Fool's Rule Your Retirement service, owns shares of the Vanguard Total Stock Market Fund, many wrinkled shirts, and at least four kids. Sina is a Stock Advisor recommendation. Johnson & Johnson is an Income Investor selection. The Fool has a disclosure policy.
