(Money Magazine) -- Question: I'm a 48-year-old software engineer with a wife and two kids. I earn $100,000 a year, but have not enrolled in my 401(k) plan. What investments should I start with so that I can retire as I plan to at age 65? -- Raj, Phoenix, Ariz.
Answer: The last thing I want to do is say anything that would discourage you. Quite the opposite. I think it's great that you're ready to get serious about your retirement planning.
But I also want to be honest. So before I get to what you should do, I want to make two points. First, since you say you have yet to enroll in your 401(k) and don't mention any other retirement savings, I don't understand how you can state so matter of factly that you intend to retire at 65.
Unless you have considerable savings you're not mentioning, exiting the workforce at 65 with a decent shot at financial security for life is going to be a challenge. In fact, if you go to our What You Need To Save calculator and plug in your info, you'll see that you need to save well in excess of 20% a year to be able to call it a career at 65.
I'm not saying you can't pull it off. Or even that you can't still shoot for retirement at 65. But you should know that, realistically, you might want to stay in the workforce a few extra years to build a larger nest egg. (Boston College economist Alicia Munnell stressed this theme of staying on the job longer in a recent MONEY interview.)
Or to put it another way, your eventual retirement date ideally should be more a matter of when you have sufficient resources to be able to live comfortably without a full-time paycheck, as opposed to just attaining a specific age.
My second point is that your foremost concern at this stage shouldn't be investments. It should be saving as much as you can. That's not to say a coherent investing strategy shouldn't be part of your plan. It should. But I don't care how brilliant an investor someone is; astute investing isn't going to make up for years of lost ground. Indeed, going with a very dramatic or radical investing approach in hopes of boosting returns can easily backfire and leave you worse off.
All of which is to say that this point, the single most effective thing you can do is focus on finding ways to save more dough. So let's get down to specifics.
The very first thing you want to do is enroll in that 401(k). Start with a percentage of salary you can manage -- push yourself, though, try at least 10% -- and then raise it by a percentage point or so every year or two. I realize that suddenly having 401(k) contributions coming out of your paycheck may feel like diving into a frigid pool, but you'll adjust to it. If nothing else, you can take solace from the fact that pre-tax dollars will be going into your 401(k), which will cut your tax bill.
On the investing front, I recommend keeping it simple with a basic blend of stock and bond funds. If your 401(k) plan has a target-date retirement fund -- one that gives you a diversified mix of stocks and bonds and that gradually becomes more conservative as you age -- that's probably a good choice for someone with little experience with investing and 401(k)s.
I know that target-date funds have been the subject of some controversy lately after some older investors suffered big losses in them during the 2008 market crash. But as I pointed out in a previous column, I still think these funds can be a good option, provided you understand how the particular target-date fund you're considering works.
If your 401(k) doesn't offer a target-date option or you prefer a DIY approach, you can put together a perfectly adequate portfolio with a few stock and bond funds that give you broad exposure to the stock and bond markets. You can use the mix of assets in the Vanguard target retirement fund for someone your age as a guide. Vanguard's target date funds are one of the choices on our MONEY 70 list of recommended funds.
After your 401(k) has been up and running a while, start looking for more ways to put money aside. An IRA, whether a Roth or a traditional, is the obvious first choice. You and your spouse may each be able to sock away as much as $5,000 a year (the maximum contribution rises with inflation). Morningstar's IRA Calculator can quickly tell you which types of IRAs you qualify for and how much you can contribute.
Once you hit age 50, you're also eligible to make "catch-up" contributions to retirement accounts, or an extra $5,500 annually to a 401(k) and an extra $1,000 to an IRA. They can add up. For example, someone who throws the maximum catch-up amount into a 401(k) starting at age 50 could be sitting on nearly $300,000 at age 70, assuming a 6% annual return and 3% inflation. And that's on top of the regular 401(k) balance.
After the initial enthusiasm of jump starting your retirement plan begins to fade, it can be difficult to keep the momentum going. That's only natural as day-to-day concerns compete for more of your attention. But to avoid backsliding, you need to stay on top of your planning.
One easy but effective way to do that is to periodically consult a to-do list of the basic tasks you must cover each year to stay on track. The Retirement Checklist in MONEY's October issue will help you on that score, and also provide some target benchmarks that can tell you whether, given your age, you're where you should be on the road to retirement.
But just as Duke Ellington's famous song about music said that "it don't mean a thing, if it ain't got that swing," in retirement planning all this talk of benchmarks, diversified portfolios, investing strategy, etc. is meaningless unless you begin saving. So get into the swing of things and give that 401(k), if not everything you've got, enough to get you to retirement as near as you can manage to age 65.
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