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A few things to understand
about retirement planning
- Appreciate the beauty of
compounding. Even a $100 per month contribution adds
up over a 30 year time period because of the effect of
compounding.
- Almost all retirement programs have
enormous tax benefits. So Uncle Sam does not want
your money if you save it for retirement. Like
anyone else, I want to pay minimum possible taxes.
(Related:
Personal finance for empty nesters)
- Often times, your employer will
contribute to your retirement plan if you do. That
is like free money, so take it.
How to plan for retirement and still have
fun?
- Join a 401(k) program (or whatever
equivalent program you have) and start contributing the
maximum allowable by law. Most employers will make
some contribution so you should at least contribute as
much to get all the contribution from your employer.
You will not get it if you don't contribute.
- Distribute your money evenly in about ten
different funds or other investment options. And
just let it sit there without bothering to check every
day. Just look at your statements carefully when you
get them. Unless the sky is falling, you don't have
to manage your portfolio. Over the long term, they
will all give you great returns. If you are
financially savvy, you can do a little more tweaking of
your portfolio (e.g. you can invest more in high risk/high
return funds if you are young and gravitate towards low
risk as you get older). But do your
research.
- Think of your actual salary as the one
you get after your 401(k) deduction. Believe me, you
will get adjusted to living on lower income pretty
quickly. Just cut back on what I call 'stupid'
expenses and you will do just fine. (Related
article: Personal
finance tips)
- Don't touch your retirement account till
you actually retire (unless you start to starve to death).
- Finally, remember that Social
Security is
about to be privatized, and that means that retirement
incomes will fall, according to the Bush plan. Better have your own
savings.
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