As pension plans have become almost nonexistent the burden of saving for retirement is on your shoulders. The average worker thinks that a simple savings plan in a company 401k will fit the bill as the primary means to achieve retirement goals. This is a mistake. No matter what you’ve been told or how 401k and IRA plans have been marketed, they are not retirement vehicles that do what pension plans used to. 401k plans don’t offer any guarantees that you’ll have enough money to retire. Forbes wrote an article in March of 2013 calling this 401k reliance fallacy, The Greatest Retirement Crisis In American History.
Here are 10 simple retirement saving tips that will increase your prospects for a secure retirement (and keep you from relying exclusively on a method that makes Wall Street types rich and not you).
- Save 10-20% of every dollar you make: Start saving early and often and don’t touch the money. You should save at least 10% to 20% of your income for retirement. Might sound challenging but if you’re fortunate enough to receive a 401k company match you can make it happen. Always take the company match.
- Contribute to your retirement savings plan: If you work for an employer that offers a 401k make sure you save up to the employer match, but not more. Most employers will offer a 5% match on your contributions. That means, if you save 5% the employer will match an additional 5% which will help attain the aforementioned minimum 10% savings goal.
- Live below your means: This is not a very complicated concept so let me keep it simple for you. If you make $50,000 per year, live like you make $40,000 per year. This way you’re saving $10,000 per year or in this case 20% of your earnings.
- Learn how to invest: The reason I include this one is because, when you invest your hard earned money in the stock markets or other investments there are typically four outcomes that can occur; (1) a big gain, (2) a small gain, (3) a small loss or (4) a big loss. At Online Trading Academy students are taught the concept of avoiding big losses. This is just as important as making big gains. Learn this.
- Don’t lose money: In whatever stage you are at in your financial lifecycle, you should always have protection. Subjecting your retirement investments to 40% losses like we saw in the financial crises of 2008 is not a prudent investment strategy. A portion of your retirement savings should be protected from stock market losses.
- Keep your fees low: If you have a company 401k check your investment options and find funds with the lowest expense ratio. To check expense ratios go to finra.org and click on Fund Analyzer. Look for the lowest expense ratio funds and reallocate your positions to those funds. Look for funds with no front end load fees and expense ratios below 0.50%.
- Reduce your tax bill: One of your single biggest expenses is the amount of taxes you pay. The easiest way to reduce the amount of taxes you pay is to reduce your taxable income. This can be done by itemizing tax deductions or by finding opportunities to create your own company and taking advantage of the hidden tax deductions. By reducing your tax expense you’ll put more money in your pocket.
- Learn about all other financial matters: When you think about creating a budget, retirement planning, investing and buying life insurance, a home or a car, where do you get advice? You typically learn about these financial matters from someone who’s trying to sell you a particular product. The unfortunate part is that without proper financial education you are likely to make mistakes. We’ve seen it over and over again. Prior to making these types of financial decisions make sure you’re educated by trusted industry experts. You can then make decisions that benefit you and not the person who stands to gain financially from your buying or selling.
- Track your results: I find this to be most beneficial. Keep track of all of your investments and on an annual or quarterly basis track the value of those investments. Over time you’ll see how your investments are performing and you can make more timely and appropriate adjustments.
- Protect your retirement savings as you approach retirement (finish safe and strong): One of the most critical times in retirement income planning is about five years prior to retirement. What you don’t want to happen in this time period is to lose a portion of your retirement savings to another stock market crash. It could mean the difference between retiring or not. In Financial Matters you’re taught how to protect your assets and to build a retirement income plan that’s specific to you and your family’s objectives.