Retirement Savings Tips

Saving for retirement is often put on hold by those who feel they have sufficient time to start planning and saving later. While it is never too soon to start saving for retirement for any age group, those who fall within the range of 55-64 years are more acutely aware of its importance, as retirement is imminent. As such, this stretch represents a critical period in which to get a realistic assessment of how financially prepared you are for retirement.

Which retirement plan is best for you?

•         If you have a 401(k) or other workplace plan, then first things first: contribute enough to get any free money offered by your employer via the company match. Then check out our 401(k) calculator to see how much your current savings will bring you in retirement. To learn more about the pros and cons of various workplace retirement plans, check out our handy guide.

•          If you’ve maxed out your 401(k) or you don’t have a retirement plan at work, then it’s time to consider an IRA. Which type of IRA is best for you? We’ve outlined the pros and cons of four types of IRAs.

•        Are you self-employed or the owner of a small business? Then see which type of retirement plan makes the most sense for you.

What Is Your Time Horizon?

You current age and expected retirement age create the initial groundwork of an effective retirement strategy. First, the longer the time between today and retirement, the higher the level of risk that one's portfolio can withstand. If you're young and have 30-plus years until retirement, you should have the majority of your assets in riskier securities like stocks. Though there will be volatility, over long time periods stocks outperform other securities, like bonds.

Additionally, you need returns that outpace inflation so that you can not only grow your money in total, but also against your future purchasing power. (Bonds have actually outperformed stocks in the past 10 years. To read more, see: Get This: Bonds Beat Stocks After All.)

In general, the older you are, the more your portfolio should be focused on income and capital preservation. This means a higher allocation in securities like bonds, which won’t give you the returns of stocks, but will be less volatile and will provide income you can use to live on.

You also will have less concern about inflation. A 64-year-old who is planning on retiring next year does not have the same issues about inflation as a much younger professional who has just entered the workforce.

Assess Whether You're Ready

Assessing your financial readiness will help you to determine whether you have a projected shortfall and whether you need to modify your retirementstrategies, goals and objectives. To do so, you will need to gather a few things, which include the balances of all of your savings and checking accounts, your income tax rate, the average rate of return on your savings and information about your current income, as well as the amount of income you project you will need during retirement. (To find out how much you'll need to retire, see Retirement Planning Basics.)

If you participate in a defined-benefit plan, your plan administrator or employer should be able to provide you with your projected income from your pension.

"If you are within 10 years of retirement, the numbers pretty much are what they are, but knowing is essential to making critical decisions on things like debt, Social Security and how much income to expect from your retirement savings. Don't expect everything to work out fine if you have not done any retirement planning; that's like trying to get somewhere without a map or any directions," says Robert R. Schulz, CFP®, president of Schulz Wealth in Mansfield, Tex.

The results of a projection can show whether you have a shortage in your retirement savings, depending on how soon you plan to retire and the lifestyle you hope to pursue. If you find that you are behind with your retirement savings, there is no cause for alarm – yet – it just means that some radical changes must be made to your financial planning.

The Bottom Line

Having your retirement savings on track can provide great satisfaction. All the same, it is important to continue on that path and increase your savings where you can. Saving more than you are projected to need will help to cover any unexpected expenses. If your savings are behind schedule, don't lose heart. Instead, play catch-up where you can and consider revising the lifestyle you planned to have once you bid the office goodbye.