1. The rules for retirement success are changing.
Retirees are living longer, staying more active and likely to spend
30 years or more in retirement. The standard of living you'll maintain
during your Golden Years in the millennium will depend in large part
on how well you take advantage of tax-deferred savings options like
401(k) plans and IRAs and how skillfully you invest your money.
2. Set a savings goal.
The only way to know whether you're on track toward a comfortable retirement
is to project your retirement expenses, and then calculate how much you must
save to accumulate a retirement nest egg large enough to supplement Social
Security and other sources of income. Retirement planning software and
web calculators
can help you crunch the numbers.
3. Think stocks for long-term growth.
Over long periods of time, stocks have the best track record for boosting the
size of your retirement nest egg. Even more important, stocks are more likely
to keep your retirement savings growing faster than inflation, which will increase
the future purchasing power of the money you sock away today.
4. There's no single "correct" mix of stocks and bonds.
How you decide to divvy up your retirement portfolio between stocks and bonds
will depend for the most part on your tolerance for risk and how long you have
until you plan to retire. A reasonable starting point for investors whose
retirement is 20 or more years away is 70 percent stocks and 30 percent bonds. If you feel
comfortable shooting for higher gains despite the risk of short-term losses,
you can increase your stockholdings a bit or ratchet them back a bit if you're
uncomfortable with the prospect of volatile stock prices.
5. Avoid the urge to move too heavily to bonds once you retire.
In search of steady income, many retirees stash most or all of their portfolio
in bonds. Unfortunately, over the course of 10 to 15 years, inflation can easily
erode the purchasing power of bonds' interest payments by a third or more. Even
investors in their seventies and eighties should probably keep 20 percent or more
of their holdings in equities.
6. Contribute the max to your 401(k).
One of the surest ways of boosting the value of your retirement savings is stashing
as much as you can in a 401(k) account. You get an immediate tax deduction of as
much as $10,000, the possibility of a matching contribution from your employer
(typically half of what you contribute to a maximum of 3 percent of your salary, although
some firms are more generous), and tax-deferred growth on your savings. There are
few no-brainers in life, but this is one of them.
7. Check out IRAs.
After a 401(k), an IRA is typically your next best choice for retirement savings.
Choosing among the three basic flavors -- a traditional deductible, a nondeductible
and a Roth IRA -- may require a bit of thought, and possibly some serious number
crunching. But any effort you put into deciding among these plans today will pay
off in a more comfortable retirement down the road.
8. Make tax-efficient withdrawals from your nest egg.
The less you have to pay in taxes on the money you pull out of your retirement
savings, the longer your money will last. Pulling money from taxable accounts
first as much as possible and letting tax-advantaged accounts continue to compound
can stretch the life of your nest egg by several years.
9. Consider working in retirement.
More than 80 percent of baby boomers polled by the American Association of Retired Persons
last year said they plan to work full or part time after they retire. Most said
they plan to do so because they find work stimulates them and keeps them socially
engaged. Working even occasionally during retirement can benefit you in two other
ways: it reduces the amount you have to save before you retire, and income from a
job lowers the amount you must withdraw from your retirement savings, which reduces
the chances that you'll run out of money before you run out of time.
10. Look for creative ways to stretch your retirement assets.
You may not be able to save more in retirement, but you can probably get more
mileage out of whatever you've managed to accumulate. One possibility: Relocate
to an area with lower living expenses. Such a move can easily save you 20 percent or more.
Another option is to transform the equity in your home into monthly income by taking
out a reverse mortgage. The money you receive from a reverse mortgage isn't taxable
because it's considered proceeds from a loan, and you don't have to repay the loan as
long as you continue to live in the house.
Next: Create your retirement roadmap