We know that most plan participants are not financial experts, and that can make planning for retirement difficult.
Fortunately, there are some basic steps that you can follow to work toward a successful retirement.
Learn the basics of saving and investing
Understand the basic types of investment products, like stocks, bonds, and money market accounts. Each of these has its own risks and rewards, and plan participants should know what those are, and how they can fit together in an investment portfolio. Plan participants should have a firm grasp on what their retirement plan offers and how they can benefit from that. Although it is always important to be an educated investor, most retirement plans today offer pre-built strategies, such as target date funds and allocation models, to help take some of the guesswork and stress out of creating a long-term investment portfolio.
Avoid common mistakes
Not diversifying, not rebalancing asset allocations, becoming too emotional, attempting to “bet” or “time” the market, and not having a savings plan: these are all common errors that you might make. An ideal way to help avoid these mistakes is by focusing the majority of your time and energy on the last item on that list, a savings plan. Having a sound savings strategy has consistently been shown to be one of the most impactful factors in achieving a successful retirement.
Focus on three critical components of an investment plan
While some things, like bull and bear markets, are beyond your control, there are three things you do control: when to start saving, how much to save, and when to retire. Starting sooner and saving more have much more to do with a successful retirement than the actual returns your investments make. Set a savings goal, which is typically recommended to be 12-15% for most Americans, as well as a plan on how to get there. Deciding when to retire is crucial, as well. Delaying retirement means more time for investments to potentially grow and larger monthly benefits from Social Security; both of which help to protect against our biggest risk in retirement: longevity.
Monitor the plan, and adjust as necessary
A strong savings plan should evolve as your circumstances change. Changes in income, new family members, financial windfalls or setbacks, or any other major event in your life should trigger a financial review to make sure you’re still on track for retirement. One of the best ways to determine whether you are on track for retirement is to speak with a financial professional or use a retirement income calculator (check out a few of our favorites here).