Personal Finance > Five Tips
Saving for retirement
5 Tips: Getting your retirement in gear
May 21, 2004: 3:32 PM EDT
By Gerri Willis, CNN/Money contributing columnist

NEW YORK (CNN/Money) - What tops your financial concerns? Well, according to a recent Gallup survey, more than half of the nation's adults say that not having enough money for retirement tops theirs.

Not being able to pay costs for a serious illness or accident worries 47 percent surveyed while 39 percent are afraid they will not be able to maintain their standard of living. So, to help you ease some of the worry, here are today's five tips:

1. Analyze your needs sooner than later.

The one step most people skip entirely is figuring out just how much money they'll need in retirement.

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CNNfn's Gerri Willis shares five tips on how to ease your retirement worries.

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Fortunately, there are several Web sites out there with calculators that can help you figure it out in detail. Check out or, which is Fidelity's Web site and also allows you to track your 401(k).

Don't forget, too, that if present trends hold, you may also be on the hook for much of your own health care because many employers are cutting or reducing the amount of money they spend on retiree health coverage.

The latest figures from the Employee Benefits Research Institute show that as of 2000, just 11 percent of private employers offered their retirees health insurance coverage. And the number of companies offering insurance is dwindling even more.

To get a sense of how much you might need to pay your own health care premiums in retirement, go to and click on the retiree health savings calculator.

As you analyze your needs, take into consideration any other resources you may have to tap, such as savings outside a 401(k) or real estate when you do retire.

Also try to consider your lifestyle. What are you expecting your retirement to be? Extravagant travel? A second home? These are all things to consider when building your nest egg.

2. Don't neglect your 401(k).

The best place to start when it comes to putting money away for retirement is your 401(k).

After all, your company's 401(k) retirement plan offers you one thing you'll get few other places -- free money. That's right. For every dollar the average worker puts into their 401(k), their employer contributes 50 cents.

Still, amazingly enough about a quarter of the people who have the option to contribute, don't. And of those who do contribute, 75 percent contribute only a fraction of what they could. These are the people very likely hitting retirement age and saying "I don't have enough money."

401(k) plan contribution limits
Tax yearContribution limitsAge 50 & up

For those who can, consider boosting your contribution to the max. Maximum contribution limits for 401(k) investors went up this year to $13,000 from $12,000 last year. It is expected to increase by $1,000 each year through 2006. After which it will increase at the rate of inflation.

If you are over 50 years old and still reeling from the bear market a few years ago, you do have a chance to play catch-up. Most employers will allow you to put in an extra $3,000 this year, boosting the max to $16,000. In addition, you're eligible to put an extra $500 into a Roth IRA.

The IRS has also set limits on the total amount that may be contributed to your 401(k) from all sources, including your employer: $41,000, or $44,000 if you are over 50. High earners take note: this means if you contribute to a 401(k) at too aggressive a rate, IRS rules may require your contributions and the match be cut before you get the maximum amount of dollars from your employer.

Check with your benefits office to make sure you're getting the benefit of your entire match. IRS rules try to make sure that retirement programs aren't being run for the benefit of top execs.

3. Get the allocation right.

Whether you're saving in a 401(k) for the first time, or reassessing your current savings, you'll want to make sure the mix of investments you have is right for your age and the amount of risk you're willing to take on.

For example, if you plan to tap your retirement nest egg in just three to five years, a 70 percent investment in bonds, 30 percent in a mix of small cap, large cap and international stocks makes sense.

Concern about financial matters
Percent who are worried about:
Having enough money for retirement52%
Paying costs for illness or accident 47%
Maintaining standard of living39%
Paying medical costs37%
Paying monthly bills32%
Paying housing costs24%
Making min. credit card payments17%
Source:Gallup Poll

If you're just starting out, however, and have plenty of time to weather the markets shifts, you'll want a more aggressive stock allocation such as 80 percent, with just 20 percent in bonds.

Want to know the best combination of stocks, bonds and cash for you? Click here to check out the asset allocation calculator at CNN/ Here you will also find recommended funds to fill out your portfolio, including large cap funds, small caps, bonds and foreign.

Remember, simply being diversified enough has a bigger impact on your returns than which funds you choose. Take time to examine the list of funds offered in your companies plan and toss out the ones that don't fit your asset allocation. Keep in mind that your investment options may be limited, depending on what your employer is offering. If you have a question, check with your Human Resources department.

Now, if you're looking for a low maintenance portfolio, consider using index funds. Check out the performance of actively managed funds at, where you'll want to compare the performance of the funds you're considering investing in with peers over a three and five year period.

But keep in mind that stellar short-term performance alone isn't a reason to buy. Finally, if you can't remember the names of all the funds you are invested in, then you have too many.

Try keeping it simple with a six-pack approach: One large-cap fund, one mid-cap, a small-cap, throw in an international fund, a bond fund and finally a money market fund.

For the more advanced investor with multiple savings goals, a well-diversified portfolio typically consists of owning 15 to 20 funds.

4. Put your finances on automatic.

If your problem is that you find it difficult sticking to a savings plan, then your best bet is to go automatic.

This way your employer will take the money out of your paycheck before you have a chance to spend it, and put it directly into your 401(k).

Gerri Willis
Personal finance

If you don't have a savings plan at work, or you have the ability to save more money than your 401(k) allows, consider investing elsewhere. You can open up an account with a bank or brokerage and instruct them to automatically debit the funds from your bank account.

And, hey, if you feel comfortable with this, you may just feel comfortable automating other areas of your financial life such as credit card and utility payments. Log onto your bank's Web site for details.

5. Your child's education is important, but...

Hopefully you began saving for your child's college education before he or she could walk. If that's the case, when it comes time to pay for that special day, tap those reserves, not your retirement savings.

Think about it. You can't borrow for retirement, but your child can borrow for his or her education and has a much longer period of time to pay it back.

If you are new to the game, the college savings plans or funds most people have are 529s, Coverdells, savings bonds and investments owned by a child.

Think about dipping into any assets owned by the child first since these could hurt his or her chances of getting financial aid. Financial aid programs penalize students' assets more than parents' when it comes to the proportions that must go to education. Check out for details on 529 and Coverdell plans.

Gerri Willis is a personal finance editor for CNN Business News. Willis also is co-host of CNNfn's The FlipSide, weekdays from 11 a.m. to 12:30 p.m. (ET). E-mail comments to  Top of page

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