10 foolproof strategies to make sure you save enough for retirement


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Nearly half of Americans have less than $10,000 saved for retirement. With so many companies providing support to their employees through 401(k) plans and matching, we should be doing better. However, saving and investment are not something we are taught, and as we like to say, common financial sense is pretty uncommon.

In our book,  Common Financial Sense, we explain exactly how to make the most of your 401(k) to fund the retirement you deserve. Here are the top 10 tips you need to invest responsibly and save enough for your retirement.

1. Determine your optimal asset allocation

Asset allocation is a fancy way of saying, “Don’t put all of your eggs in one basket.” It’s the way to diversify your portfolio so that you can balance out your goals, risk tolerance, and investment time horizon.

You choose your optimal asset allocation by determining how much you want to put into stocks, bonds, and money markets. The more risk you want, the more you’ll invest in stocks. The more safety you want, the more assets you’ll put in bonds and money markets.


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2. Take risks while you’re young

If you are a young investor, you may be working and earning money for 30 or 40 more years. Your time horizon is long, and you may want to build a long-term growth portfolio with the majority of the investments in stocks.

If you are in your 50s or older, your time horizon is shorter, so you may want to put more of your money in less risky investments like bonds, money markets, and stable value funds.

3. Regularly rebalance

Rebalancing refers to the process of bringing your asset allocation to your desired levels, given your changing goals.

Once you have decided on your asset allocation, you should rebalance your account at least once a year. You may assume that you can just “set it and forget it,” but you’ll have the most long-term success if you make an effort to rebalance. Retirement plan investing is not for spectators — that’s why those who invest in them are called participants.

4. Take advantage of your employer match

Hopefully, you work for a company that offers a matching contribution to assist your retirement planning further. The employer matching contribution works like this: up to a certain percentage limit, your company matches whatever amount you’ve put into your 401(k) yourself.

In the language of Common Financial Sense, employer matching on a 401(k) is free money that you should take advantage of.

5. Track your progress

There are different ways to measure the progress of your 401(k) over time. Our preferred way to measure your progress is to compare your account balance against your long-term retirement goals. A good way to do this is to use the retirement planning calculator tool that your 401(k) plan provider has set up for you on their website.

6. Remind yourself that your sacrifice is worthwhile

A popular myth about 401(k) plans is the belief that your contributions will not amount to much by retiring.

The most important thing to remember is that no matter when you begin or at what amount, compounding your contributions will bring you much closer to your goal than you think. The cost of waiting to put money into your 401(k) plan is extremely high. Even worse, there are no do-overs!

7. Don’t borrow against your account

People often think, “Borrowing money from my account while I’m working won’t really matter in the long run because, after all, I’m paying myself the interest.”

However, if you take a loan on your 401(k), you’ll have to pay taxes twice on the same dollars: once when you pay back the loan since you’ll be paying with “after-tax” money, and again when you withdraw the money during retirement.

Remember that this is a retirement account, not your personal piggy bank.

8. Don’t cash out your 401(k) when you change jobs

You will be allowed to cash out of your plan once you leave. This is a critical mistake.

There are many disadvantages to choosing this option. You will have to pay taxes on the full amount you receive and will most likely have some of the taxes withheld before receiving your check. If you are under age 59 and a half, you will also have to pay a 10 percent penalty for taking the money before retirement.

Instead, roll it over to your new employer’s plan and continue investing as you were before.

9. Take care of the legal documents

It’s important to have your legal documents in order so your assets can go to the right people when you pass away.

These include a will (which instructs how your assets will be distributed to among your surviving heirs), power of attorney (which allows someone else to step in on your behalf concerning your financial affairs), and finally, a healthcare proxy (which authorizes someone to act on your behalf for decisions related to medical issues).

10. Let the professionals handle it

If you’re really confused, the good news is that most 401(k) plans have actively managed portfolios to choose from. The main advantage of managed portfolios is that the fund manager chooses the mix of all the funds you invest in (the asset allocation).

By allowing the professionals to determine the mix of investments and monitor their progress, you are freed up to channel your energies into other activities that you may find more productive.

This article was adapted from Harris Nydick and Greg Makowski’s book “Common Financial Sense: Simple Strategies for Successful 401(k) & 403(b) Retirement Plan Investing” and syndicated by MediaFeed.org.