It's easy to feel overwhelmed when it comes to saving for retirement. Everyone has an opinion about which funds to select for your account. Even co-workers trade stories about which funds they've added to their retirement account. Before you get too wrapped up in the opinions of your co-workers, consider the following three guidelines to help keep your retirement savings on the right path to success.
Save 15% for Retirement
Most retirees, unfortunately, rely mainly upon social security to fund their retirement. Many planned too late or simply didn't save enough. The verdict is still out on whether there will be enough in the social security trust to pay full benefits for millennials. Many millennials that I've spoken to don't think social security will be around at all once they reach retirement. So, with so much uncertainty about what will or will not be available with regards to social security, it is important that you think about putting as much as you can away for retirement. I recommend saving at least 15% of your salary (including any employer matching contributions) in order for your assets to support you through a retirement that could last for decades. You may end up in the centenarian club (individuals age 100 or older) and need a retirement account to last just as long as you do!
You may have to take baby steps getting to the 15% target mark. For instance, if you have access to an employer 401(k) retirement plan, contribute enough to receive the company match, and if no match is available, start by contributing 6% of your salary. Each year, increase your contribution one or two percent until you reach your target. You will likely not miss the contributions if you take incremental steps and the increases coincide with annual pay raises. When you get a raise, give your retirement contributions a raise.
Invest Early On
If you surveyed retirees and asked them what would they have done differently regarding their retirement if they could turn back the hands of time, many of them would tell you that they wished they had started saving much earlier. Compounding is on your side when you invest as much as you possibly can early in your career. Starting at twenty-five thinking about retirement is much better than waiting until you hit the age of forty!
Let's take for example a twenty-five year old who makes the decision early on that they are going to save $350 per month towards retirement; no more, no less. Three-fifty is their magic number and they would save this amount until they retire at the age of 67 (this just happens to be my full retirement age). If this conscientious twenty-five-year-old received an average rate of return on their investment of 7%, by the time they reached 67, they would have a nice nest egg of a little over one million dollars ($1,036,461.29 to be exact). Adding more will obviously yield a larger nest egg. If the individual waited until the age of 40 to decide to save and invest for retirement, it would take $1083 per month to receive the same results (retiring at the age of 67). Investing early allows you to invest smartly and not hard.
Expose Your Portfolio to Equities
Equities or stock investments can possibly lose value in a down market or go up and down in a volatile market. Some people can't stomach the roller coaster ride of a volatile market. However, your investments could generate the highest growth potential over the long term invested in equities. If you are fortunate to join the centenarian club and still have a stable mind, you don't want your investment tank to be on empty.
Keeping all of your assets in cash, will not keep pace with inflation. Fixed income investments help soften the short-term swings in a portfolio, while equities provide the long-term growth potential needed to help your money last throughout your retirement. It's important to create a portfolio based on your risk tolerance and diversified in the three asset classes of equities, fixed income, and short-term investments. Keep in mind, however, that all investments involve some form of risk, including possible loss of principal.
Investing for retirement doesn't have to be a daunting task. By focusing on the things you can control, creating a money mindset, and following these three guidelines, you can steer your retirement savings on the right path to success.
About Terrell Dinkins, MBA, ChFC®
Terrell Dinkins, MBA, ChFC® is an investment adviser representative of and offers investment advisory services through OBN Wealth Advisors, LLC, a registered investment adviser offering advisory services in the State of Georgia and other jurisdictions where registered or exempted. Main Office: 950 Eagles Landing Pkwy, Suite 216, Stockbridge, GA 30281. Tel: 404-723-9780. Website: OBN Wealth Advisors