You're hardly the only young person who feels he lacks the
information to get a leg up on retirement. Almost 20% of Millennials polled in
a recent BNY Mellon survey said they receive no financial info at
work or from educational institutions, and nearly half admitted they're making
a blind guess about how large a nest egg they'll need for retirement.
But cheer up. It's not as if you need to take a formal
Retirement Planning 101 course to get on the path to a secure retirement.
At heart, retirement planning is pretty straightforward, so you can easily pick
up most of what you need to know as you go along. Here are three specific
things you can do to get -- and stay -- on track.
1. Start saving at
least 10% of your salary, pronto. There are few absolute truths in
life, but here's one of them: Unless you save regularly, there's virtually no
chance you'll be able to live comfortably in retirement. So find a way, any
way, to begin stashing at least 10% of your salary in some type of retirement
account (although 15% would be even better). If your employer offers a
401(k) or similar workplace plan, that's the best place to start. In addition
to some valuable tax breaks -- with a traditional 401(k) you don't pay tax on
your contributions or earnings until you withdraw them, preferably in
retirement -- most employers also kick in matching funds that can significantly
boost the value of your account.
2. Go with a simple
and low-cost investing plan. The message you get from many financial
services firms is that to be a successful investor you've got to sort
through dozens of investments to come up with the "best"
choices and then constantly tweak your holdings to reflect every new mutual
fund or arcane ETF that comes along. Nonsense. The more complicated your
investing strategy is and the more investments you accumulate, the harder it
will be to manage your portfolio and the more things that can go wrong.
Simpler is smarter. All you've got to do is create a basic
mix of broadly diversified stock and bond funds that jibes with your
tolerance for risk and the length of time you plan to keep your savings
invested. For someone your age, that likely means keeping 70% to 90% of your
retirement savings in stocks and 10% to 30% in bonds. You can find a blend
that's right for you by going to this risk tolerance-asset allocation
questionnaire. Once you've settled on an appropriate mix, don't mess with it,
except perhaps to rebalance your holdings once a year to bring them
back to their original proportions.
If you prefer an even simpler approach, look into a
target-date retirement fund, basically a fund that gives you a pre-set mix of
stocks and bonds that becomes more conservative as you age. Or you can check
out a "robo-adviser," a new breed of low-cost online investment
management that uses algorithms to build portfolios, or for that matter even
hire a financial planner for a flat fee or on an hourly basis to help
you set a basic investing strategy.
If you're doing your investing within a 401(k) or other
company plan, you may not have all the options I've described above. In that
case, do your best with the choices you have to create a simple mix of funds
that gives you broad exposure to the stock and bond markets while keeping costs
low, if possible below 0.5% a year. Holding investing fees and costs to
a minimum is especially important today given that many advisers expect that
stocks and bonds will deliver lower-than-average returns in the years
ahead.
3. Relax. You
don't want to be one of these people who are always checking their account
balance or constantly re-jiggering their investment strategy based on the
market's ups and downs or the latest scuttlebutt about the Fed. If you're
saving on a regular basis and investing in an appropriately diversified
portfolio of stocks and bonds, you can put retirement planning on the back
burner and instead turn your attention to the other things you need to
accomplish in life, like nurturing your career, raising a family, having fun,
etc.
In fact, once you've got the basics of saving and investing
covered, all you really need to do is check in periodically -- say, once a year
-- to confirm you're making progress, which you can do by plugging your savings
rate, account balances and other financial details into a retirement calculator
that uses Monte Carlo simulations to estimate your chances of being
able to generate the income you'll need throughout retirement. If your chances
of success are declining from year to year, you can re-run the numbers (or have
an adviser crunch them for you) to see how moves like saving more,
investing differently or postponing retirement might improve your outlook.
You'll undoubtedly have to make many more decisions over the
next few decades as you progress through your career toward retirement. But for
now at least, the steps that I've outlined should be more than enough to help
you get your retirement planning underway.
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