There are three primary factors that determine the success of an individual’s retirement nest egg.
Here they are in their order of importance:
- Time – If you haven’t started saving for retirement, start now!
- Amount – Save as much as you can while operating within a defined budget.
- Performance – Invest your retirement funds using an appropriately diversified allocation based upon your risk profile.
Is Your Nest Egg Growing?
It is never too early or never too late to begin saving for your retirement. By utilizing retirement programs such as your company’s retirement plan, a Roth or Traditional IRA, or SEP IRA’s for self-employed individuals, you can make your retirement savings more efficient by taking advantage of the tax benefits of these plans. With your company’s plan, your contributions will be deducted from your paycheck, so after a couple of pay periods, it’s likely you won’t miss it. But it will be steadily working for you.
There are “rules of thumb” for everything which is why you often hear financial folks say to save 10%-15% of your gross income for retirement. While this might be a good yardstick, there are many factors that determine how much you should be contributing to a retirement plan…not the least of which is how much you can actually save after paying bills, buying food, filling up your car, etc. A good strategy for those who already feel stretched is to start with something and try to add to it every six months or year. This may be the psychological hurdle you need to jump to begin the wealth building process. Everyone must start somewhere!
Some people become obsessed with investment performance. This is why entire cable networks are dedicated to reporting about the hot, new stock or the latest trend in the market. Statistics, however, are on the side of the turtle and not the hare. For most people, a measured approach wins the race, one which diversifies your contributions across key segments of the markets. The rise in popularity of target date funds and lifestyle allocations is not because they are the hottest performing funds on the market, it is because they give individuals the confidence that their money is working for them despite the volatility inherent to investing.
Whatever your strategy, remember that investing for retirement is not a get-rich-quick scheme. It typically rewards those with a long-term outlook and the patience to save throughout all types of market cycles. Just like the turtle, slow and steady wins the race.