Every new year holds out the promise of new possibilities. That’s why now is a good time to examine your financial situation and make sure you’re on track to a comfortable retirement. Once you identify areas that need improvement, you can resolve to do something about them in the coming year.
I Will Understand My Plan
Learn as much as you can about your employer’s retirement plan so you can make the most out of this opportunity to save and invest for your retirement. The Summary Plan Description (SPD) explains your rights and benefits under the plan. And there are additional resources available to you as a plan participant that can also help you use the plan effectively.
I Will Contribute More to My Retirement Plan
The more money you put into your plan, the bigger your potential nest egg. Adding an extra $10 or $20 per paycheck could make a big difference over the long term. Consider putting some or all of any pay increase or bonus you receive into the plan. Participants in 401(k) plans contribute an average of 6.3% of their pay, according to the Plan Sponsor Council of America.* However, many experts recommend that workers save at even higher rates.
I Will Take a Long-term View of Investing
While playing it safe with your retirement investments may help you sleep better, it may not help you stay ahead of inflation. Far too many retirees find that their savings are insufficient to support their standard of living during all of their retirement years. Although not saving enough while working is one reason this occurs, low rates of growth on retirement assets can also be to blame. If you invest all of your retirement assets in very conservative investments, you risk having inflation erode the purchasing power of your savings.
Review how you have allocated your investments in your retirement plan. You may find that your allocation is too conservative and focused on “safe” investments. The reality is that to earn inflation-beating returns, you may have to take on some additional risk. You may want to consider including stock funds in your portfolio. Though stocks are more volatile than either bonds or cash investments, over the long term, they have outperformed both of these asset classes and delivered inflation-beating returns.
I Will Diversify My Portfolio
Whatever your capacity for handling investment risk, it’s generally advisable not to invest 100% of your retirement savings in just one investment or asset class. When you spread your money among several different investments in different asset classes, you reduce the risk that your overall portfolio will be dramatically impacted if a particular investment or asset class performs poorly.
Once you make your financial resolutions, stick to them. Over time, they will help you reach your retirement savings goal.
Your situation is unique, so be sure to consult a professional before taking action.