If you’re saving for retirement, congratulations! But do you have a solid plan? No matter your age, having a thoughtful strategy is the best way to make sure you’re on the path to maximizing your savings — and achieving your retirement goals. These three steps will help you build a new plan or review an existing one.
1. Begin with the basics
These sound investment principles should form the foundation of your retirement savings plan.
- Rebalance your 401(k), 403(b), IRA, or other retirement-specific investment plan annually, at the very least. Rebalancing allows you to adjust your portfolio for market shifts that may have changed your allocations. It also helps you reassess your risk tolerance and see if investment changes are in order.
- Diversify to help reduce risk. Make sure your investment portfolio includes different types of assets, such as stocks, real estate, commodities, insurance, etc. If the market makes a sudden downturn, having a high concentration in one asset class can leave you more vulnerable to losses.
- Maximize your IRA contribution. Ideally, you should divide your annual contribution into 12 monthly payments. This lets you take advantage of dollar-cost averaging and reduce the risk of investing at a single unfavorable time. If you’re age 50 or older, remember that you can make “catch-up” contributions to your IRA, 401(k), or 403(b) accounts, boosting your nest egg even more.
2. Investigate insurance
Don’t overlook the importance of insurance, particularly life and long-term-care policies. Many people don’t realize that different types of insurance can provide additional sources of retirement income, help increase what you can pass on to your heirs, and protect you from rising medical and chronic care costs.
Take time to review your policies annually to make sure what you have is still what you need. For example, as you get older, your life insurance needs may decrease, but you may want to invest in a long-term-care policy. If you make changes that lead to decreased premiums, you can reallocate your savings into other investment vehicles.
3. Save a little more
Finding ways to put a little more into your retirement savings can potentially have a significant financial impact. For instance, by saving an additional $250 per month for 20 years at a modest annual return of 5 percent, you could boost your retirement savings by nearly $100,000. Where do you find the funds? Explore the possibilities of refinancing your mortgage, reducing insurance premiums, and eliminating a few non-essential expenses. Even changing from eating out to eating at home a couple more times a week can add up quickly.
These three steps will give you a solid start, but you also need to stay on top of your plan with regular reviews and strategy adjustments, as needed. It’s the best way to stay on track to your retirement dreams.