Friday, May 16, 2008

Haven’t started saving for retirement yet…why not?

Small steps reap big rewards.
I don’t know who came up with that phrase but it can definitely be applied to saving for retirement. And for those recent college graduates out there: I don’t want to hear that “I’m drowning in credit card debt and student loan debt and can’t afford it.” You can’t afford not to save for retirement. Save what you can now and gradually increase your retirement investing as your income rises and your debt to income ratio is lowered (hopefully!). Take the small step of enrolling in your company’s 401K (or 403B or Thrift Saving Plan) and get that match if they offer it. If your place of employment does not offer a retirement plan, invest in your money in a Roth IRA. There are many reputable companies (Vanguard or Fidelity to name two well-known ones) to choose from these days.

The following quote from a U.S. News & World Report article, Retirement Tips for 20-Somethings captures my view on retirement investing now versus later: “If you invest $1,000 per year in a tax-deferred account that earns 7 percent a year beginning at age 25, you will end up with $199,635 at age 65. Invest the same amount beginning at age 40, and you'll end up with only $63,249.”

In other words: you can miss out on investing thousands of dollars in your future by waiting a decade or two to start thinking about how to fund your retirement.

But what if I don’t know how to balance a portfolio?
For those of us like myself who don’t have a financial background or are savvy enough (yet!) to balance our own investment portfolio, hire a professional. Do you feel like a personal failure when you can’t figure out how to fix your car or give your self the perfect hair cut and color? Of course not! So, why should you feel the same way about hiring a professional to manage your investments? But just because you hire a professional doesn’t mean you don’t also seek to educate yourself as much as possible on your retirement investment plan so NO ONE can pull the wool over your eyes.

If you know roughly how many years you have before you plan to retire (roughly 40 years in my case), many investment companies now offer target date funds which would consists of purchasing a single fund (instead of several) with an asset mix that automatically becomes more conservative the closer you get to your retirement date.

Taking control of your finances leads to personal empowerment.
Starting to take a shrewder look at my finances has made me start to feel like an adult like nothing else (except the idea that there is a whole generation of kids out there that weren’t even born yet when Biggie and Tupac died over 10 years ago!).

I have started to create financial goals for my future and though many of them are years from being accomplished, at least I’m developing a plan. That itself is empowering. I encourage you to do the same. So I ask you, have you started investing/saving for retirement and if so, what percentage of your income can you comfortably afford to put away? Do you expect this number to go up with time?