You managed to put on a shirt that wasn'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 now have time to 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, if you choose a "traditional" retirement account, contributions reduce your taxable income, and the investments grow tax-deferred (i.e., you'll cut your tax bill). If you choose a Roth account, you don't get a deduction today, but withdrawals are tax-free in retirement. 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 still have until April 15 to make a contribution for 2009!) With a discount broker, you'll have many, many more investment options and pay much less in fees.
If you're fully eligible for a Roth IRA -- i.e., if you're single and have a modified adjusted gross income (MAGI) less than $105,000 or married and have an MAGI less than $167,000 -- that's a great deal.
2. Choose the right investments.
This one really trips up a lot of people. But don't let it stop you from putting a plan into motion. Just buy thousands of stocks and bonds.
Sounds daunting? It's not. Just buy a target retirement fund, which automatically allocates your investments across an appropriate mix of stocks and bonds, both domestic and international. All the rebalancing is done by the fund company, and the asset mix gets gradually more conservative as you get closer to retirement.
For example, the T. Rowe Price 2025 Fund (TRRHX), a "fund of funds" meant for folks who hope to retire in 15 years, is 79% stocks, 21% bonds and cash. Its top holding is the T. Rowe Price Growth Stock Fund (PRGFX), which, as its name suggests, invests in a wide variety of growth stocks.
Will such a fund protect you from a loss or guarantee you'll be able to retire? No. Can you do better than target retirement funds? Sure, if you put in more effort. But if history is any guide -- and it's the only guide we have -- investing in a well-diversified, regularly rebalanced portfolio is a long-term winner, and you can get that relatively efficiently from a low-cost target retirement fund.
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. You want to make sure your savings will lead to where you want to be, when you want to get there.
If you need a little professional, objective help determining whether you'll have enough to retire, check out the fee-only financial planners of the Garrett Planning Network, who are now offering a limited-time 10% discount to Motley Fool readers. Just click on your state on the Locate an Advisor map, and look for the Fool logo for participating advisors.
