Saving for retirement is important to think about, regardless of age. We’re living longer and financial experts predict that our Social Security incomes will only cover part of our living expenses. With this in mind, I just finished reading Saving for Retirement by Gail MarksJarvis, a writer for the Chicago Tribune.
I found this book very interesting and full of links to great websites. Financial advisors hold different opinions on how to save for retirement, so it is up to you to decide what is best for you. These are suggestions from one financial expert, Gail MarksJarvis:
1) The earlier we start saving, the more we benefit from time. Whether it’s a savings account or a mutual fund, these accounts have the potential to make money for us through compound earnings. So even if you can save just $5 per week for retirement – the price of a cup of coffee from Starbucks, it’s worth starting to save that money now, so it has longer to earn money for you.
2) The safest investments are a savings account, certificate of deposit or a money market account as they are insured by the FDIC – see this link for more info: http://www.fdic.gov/deposit/deposits/dis/
3) Typically speaking, the safer the investment, the lower the earnings. Beyond the FDIC-insured accounts above, people typically often consider mutual funds, as they are a way to invest in a variety of stocks and/or bonds. Because mutual funds invest in many stocks and/or bonds, they can be less risky that choosing to invest in the stock of one company. However, like stocks and bonds, there is no guarantee that you will keep the money you invest in mutual funds. Like stocks and bonds, they will earn or lose money, depending on the economy.
4) There is definitely a risk involved with mutual funds, stocks and bonds, as we saw with the fall of the stock market after the housing crash. Stocks fell 57% between late 2007 and early 2009. However, the people who kept their investments during those turbulent times eventually saw their investments come back up to their pre-fall levels. The amount of time you expect to keep your money invested is an important consideration in the amount of risk to take with your investments. For example, the closer one gets to retirement, the more cautious s/he may choose to be with their investments. For more info, see: www.choosetosave.org.
5) There is a converse relationship between how well stocks do and bonds do. When stocks do well, bonds do not and vice versa. Therefore, MarksJarvis suggests a balanced approach with a mix of both stocks and bonds in your mutual fund holdings.
6) If you invest in mutual funds, pay attention to the expense ratio – how much the mutual fund company charges to manage your fund. Also, consider no-load funds so you avoid paying a commission when you buy or sell the fund.
7) Your employer may offer a retirement plan such as a 401(k). A 401(k) has strong tax advantages. Your money is invested pre-tax and you aren’t taxed on any earnings on your accounts until you withdraw them after you retire. If your employer offers an “employer match” to part of your investment in your 401(k), that’s basically free money, so take advantage of it.
8) Lastly, in addition to a 401(k), an important retirement savings plan is an individual retirement account (IRA). You can house your IRA with a bank or a mutual fund company and you can invest in a CD, savings account, money market account, mutual fund, etc. There are 2 types of IRA’s, the traditional IRA and the Roth IRA. The type of IRA determines whether you are taxed when you withdraw the funds. IRA accounts earn money for you tax-free until you withdraw money from them, which can start without a penalty at age 59 ½. Please note that there are limits on how much you can invest in an IRA, depending on your age and income level. For more information, be sure to see: http://www.irs.gov/Retirement-Plans/Traditional-and-Roth-IRAs
Please consider that financial advisors will hold different opinions on how you should invest and save for retirement. It’s up to you to carefully research and learn about your options and decide what works best for you personally, given your comfort level with risk and other factors.
I hope you find this book review helpful and that it peaks your interest in researching additional options and resources to save for your retirement.
Written by Senior Career Services Director Lisa Cook