Smart Retirement Savings Steps to Take Now
The recent turmoil in the financial markets has touched virtually every
sector of the economy. One great source of anxiety for many people is the
state of their retirement savings. Late last year, many saw the value of
their retirement nest egg dwindle as stocks and stock mutual fund shares
tumbled lower. The market will always be subject to ups and downs, but the
Iowa Society of Certified Public Accountants advises that there are steps
you can take to better protect yourself for the future.
Don't panic
It’s important to make well-considered decisions about your retirement
investments, even in the face of market turmoil. The financial markets
typically work in cycles. That means stock prices that slump today may well
rise tomorrow or a year from now. Instead of reacting to market gyrations,
it’s a better idea to adjust your investment plan based on how close you are
to retirement.
Starting your career
No matter what your time of life, it’s best to set aside as much money as
possible toward retirement. Many young people ignore this advice because
retirement seems so far off. This is a mistake, however, because the more
time you have, the more your savings will grow. For a young person, then,
the chief advice is to get started on saving and keep at it. CPA financial
advisers also counsel that it’s safest to take a little more risk with your
investments when you’re in your 20s and 30s. Investments like stocks are
considered riskier than bonds, for example, but they often offer a better
chance to increase your investment if you hold them over a long period.
However, every one has a different tolerance for risk, so you will have to
decide how to invest your retirement money based on your own willingness to
take risks or the current state of the market.
Moving into midcareer
If you are in your 40s and 50s, it’s important to continue making
contributions as you head towards retirement. If you already make the full
contribution toward a 401(k) through your employer, consider, if you are
eligible, contributing to an individual retirement account or Roth IRA if
you have the funds to do it. Remember, too, that, for 2009, if you are 50 or
older, you are allowed to contribute an additional $5,500 toward a 401(k)
(or $5,000 for 2008) and an additional $1,000 toward an IRA or Roth IRA.
You should also be looking to strike a balance in terms of investment
allocation. On the one hand, you should be a little more cautious because
you are closer to retirement. On the other hand, you will probably need to
live on your retirement savings for several decades, so you want to make the
most of them. CPA financial advisors suggest having about 40% of your assets
in less volatile investments, such as bonds, and 60% in investments with a
potential higher yield, such as stocks.
Nearing retirement
Once again, it’s important to continue to contribute to your retirement
savings even as you move into your 60s so that you can benefit from
potential interest or earnings on every dollar you save. You’ll also want to
examine what percentage you have in stocks vs. bonds or money market
investments and begin to move closer to 50% in each.
Consult your CPA
Saving for retirement, and deciding how to manage your retirement nest egg,
can be complicated tasks no matter what your financial situation or life
stage. Your local CPA can help. Turn to him or her for advice on all your
financial needs. To access “Find a CPA” on the web, go to
www.findanIowaCPA.com.
