Millions of Americans worry about whether they have enough saved to get them through their declining years. The economic turbulence of the past few years has only amplified this issue, particularly for those who are at or near retirement age. And a large percentage of those who are faithfully socking money away are still unsure of whether or not they are saving enough or investing what they have correctly. The answer to this is not always black and white, but examining a few key factors can give you a general idea of how prepared you will be for retirement.
How Much Have I Saved?
This is the obvious place to start when analyzing your retirement preparedness. The amount that you have saved should be proportionate with your age; if you are in your twenties, then you should have at least a small retirement account or plan in place and be contributing to it on a regular basis. If you’re in your thirties, your portfolio should be a bit larger (ideally equal to perhaps a couple of years of your annual salary or compensation). By the time you reach your forties, your retirement plan should probably be in the six-figure range if you have been contributing steadily to it and haven’t experienced any long periods of unemployment. If you’re in your fifties or sixties, then your retirement plan balance should be approaching the amount that you need in order to sustain you through your nonworking years.
What Should I Be Investing In?
Again the answer to this question will change as you get older, although your risk tolerance will also play a role in the asset allocation of your retirement portfolio. Those in their twenties and thirties should be investing either primarily or exclusively in stocks and/or stock mutual funds in most cases, because stocks are one of only two asset classes that have historically outpaced inflation over time (the other asset class being real estate). As you get closer to your retirement, you should probably start to reallocate your savings into more conservative holdings such as corporate or treasury bonds. However, most people should always probably keep at least a portion of their nest egg in equities in order to provide a hedge against inflation. But the exact mix of assets that is right for each person will vary according to their circumstances and investment objectives.
There are many variables that must be considered when evaluating how prepared you are for retirement. Your asset allocation should match your time horizon and risk tolerance in order to achieve your investment objectives.
Make time to explore what kind of retirement planning makes sense for you. There is no one-size-fits-all retirement plan. Smart Money provides another example of a retirement planner for you to consider. You may also want to consult your financial advisor.