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By Michael Sterling
In this day and age, planning for your future is one of the scariest things. We don’t know what it holds, which is why having a safety net is the greatest thing we can provide ourselves. It’s a strange time in America. People are living much longer than they used to which means there is less opportunities to save, since more people equals less jobs.
However, there are a few points that every man must be aware of if they want to have the best retirement plan they can possible achieve. Not only does retirement investing require a hands-on approach, but it also leaves your future where it belongs – in your control.
#1) Control Your Retirement Accounts
Retirement accounts are one of the easiest ways to watch your money grow. The U.S. government sets an annual contribution limit on such accounts, and a smart investor will try his hardest to hit the max. For those who have a 401(K) or other workplace plans, there is usually a $16,500 annual contribution limit ($22K for those 50 and older). IRAs, however, have only $5,000 limits.
For people who have both, it can be confusing as to which accounts should take precedent over certain investments. However, recent studies have shown that a retiree gains much more by putting a higher percentage of stocks into his taxable accounts, while taxable bonds are way better in a tax-favored retirement account like an IRA.
To learn more details about these plans, visit the IRS website.
#2) Asset Allocation Should Be Strategized To Make Your Goals
91% of a portfolio’s performance is determined by allocation of assets and not by individual investments or market timing, according to Transamerica Retirement Solutions.
Though it’s always a good thing to have retirement accounts, if you want to have a hefty retirement, the majority of your money should go towards investments that generate annual interest, like bonds, bond funds or CDs.
Many financial advisers suggest that stock market or equity investments should be equal to 120 minus your age. Meaning, someone who is 60 should have 60% of their portfolio in stocks, regardless of whatever retirement accounts they have.
One of the best ways to see if you’re heading in the right direction is to test whether your asset allocation is in line with your goals. Market Watch’s Retirement Planning Calculator is a great tool to determine whether you need to change tactics or stay on the current path. Every three months or so, it’s a good idea to give yourself a review.
#3) Distance Yourself From Extra Expenses
Many men fall victim to bad investments which will end up costing them thousands and thousands of dollars over their lifetime. A major part of this isn’t just a failed company, but it’s also the lack of consideration for extra expenses, i.e. fees, startup costs, commissions.
Fees are always going to add up, and sometimes they might cost more than the actual investment itself. In reality, fees should only be 1 – 3% of your entire portfolio (less than that if possible). When it comes to stocks, it’s smart to stick with index funds and mutual funds, while exposing yourself to domestic and international markets. These will keep the fees at bay.
If you decide to go another route which requires hefty expenses, i.e. angel investing, then be sure you distance these costs from the rest of your portfolio. Unless it’s in your budget already, never spend money that affects your other assets. Keeping the ship afloat and heading towards your goal is the top priority.