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We buy anti-wrinkle creams, endure Botox injections and even plastic surgery just so we can preserve our looks as we grow older. What about preserving our bank account as we grow older? More Americans are concerned about how well they age in retirement rather than how well they can afford retirement.
The main reason we avoid saving for retirement or college is because it all seems so overwhelming and confusing. But it doesn’t have to be. Here is how to get started step by step.
Investment Guide
Just Start – Many Americans put off saving because they feel they don’t have enough to save. They keep waiting for the promotion, the year end bonus or the money tree to grow in the backyard. But by waiting, they miss the main point of investing. It’s not about how much you invest, but how long you invest. Take this very poignant example:
A young 20 year old invests $2000 a year for 10 years having a total contribution of $20,000 by age 30. By retirement age, she would have $1,000,000. Yes $20,000 can become $1,000,000.
Now compare that to:
An older 30 year old who invests $2000 a year for 30 years and contributes a total of $60,000. By retirement age, they would only have $500,000. Yes, waiting 10 years cost them half a million dollars.
But it is never too late to start. Even if you are close to retirement age, it doesn’t mean you can’t benefit. Remember retirement begins at 65 but you can continue to grow your money through the decades of retirement.
Avoid Analysis Paralysis – Another reason many put off investing is they want to time the market or find the next star stock. But the key to success in investing is simple – save consistently for the long term. Research by Money magazine has shown that investors who contributed regularly in standard mutual fund investments ended up with more than investors who tried to time the market and invest in star investment choices.
Read the investment guides in Money magazine or Kiplinger’s Personal Finance. They offer a good starting point. Also most large investment firms like Fidelity, Vanguard or Charles Schwab have very easy to use investment navigation options.
Keep an Eye on Your Money – Working with a financial advisor can help you develop an investment plan. But beware how they make their money. Opt for an advisor who earns their money by billing you by the hour not by taking a commission from your investments. And no matter who you work with, you need to have access to your accounts at all times. You should be able to check up on your accounts online in your pajamas. Don’t rely only on paper statements. That is how all the Bernie Madoff victims were swindled.
Investment Options
Employer Plans – Most large companies offer 401(k), 403(b) or other retirement options. Many even offer company matching. So you can get free money from your company just for investing. It is easy to sign up and contribute. Just take the time to understand your investment options and fees. You can contribute up to $16,500 a year or $22,000 if you are 50 and older.
Individual Plans – If your employer doesn’t have retirement benefits or you would like to invest on your own, you can open an IRA – an Individual Retirement Account. The annual contribution limit is $5,000 or $6,000 if you are 50 and older. And you have until April 15, 2010 to make a contribution for 2009.
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