How to Choose the Best Retirement Plan Late in Life
It's never too early to start saving and investing for a comfortable retirement, and those who wait until late in life face additional obstacles. The good news is that it's never too late to start putting money away for retirement. Even if you are nearing your retirement years, every dollar you put away is one more dollar that can work for you in your golden years. You can enjoy a great retirement even if you start late, but it's important to control your risk and put away as much as possible in the intervening years.
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Instructions
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Determine how many years you have to work until you are ready to retire. The longer you have to save and invest before retiring, the better off you will be.
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Review your budget carefully to get an idea of how much you are likely to spend in retirement. You can eliminate work-related expenses such as work attire and commuting, but you might need to add new expenses, such as a new hobby or additional travel.
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Request an estimate of your retirement benefits from the Social Security Administration. You should receive a statement each year detailing your earnings and estimating your monthly benefit at early retirement and full retirement ages. If you no longer have your statement, you can request one by visiting a Social Security office or visiting the agency's website at ssa.gov.
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Determine how much of a monthly shortfall you are likely to have between the Social Security benefits you will receive and what you expect to spend in retirement. Before retiring, you should strive to save enough to meet that shortfall.
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Use a retirement calculator to determine how much you will need in assets to generate the monthly income you expect to need in retirement. You can find retirement calculators at sites like Yahoo! Finance and CNN Money (see Resources).
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Use the number of years until retirement as your guideline when choosing your investment mix. Never invest money in the stock market that you expect to need within the next five years. You might be forced to sell in a down market and incur significant losses.
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Invest money you expect to need within the next five years in safe investments, such as government bond funds or certificates of deposit. Longer-term money can be invested in stock mutual funds. Choose low-cost no-load funds. Index mutual funds are a particularly good choice because their expenses can be as low as 0.2 percent.
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Request a prospectus from each mutual fund you are considering and read it carefully. Pay particular attention to the fees and expenses charged by the fund.
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Complete the application for the mutual fund and mail it to the address listed on the form. Include your initial deposit. If applicable, mark that the investment is for an IRA. Set up an automatic monthly transfer from your bank account to help your money grow more quickly and take the guesswork out of investing.
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Maximize your 401k savings. If you are an older worker, you might be able to contribute additional money to your employer's 401k program. Contact your employer to change the percentage of your pay that goes into the 401k plan. For the tax year 2010, workers 50 and older can contribute an extra $5,500 in addition to the standard limit of $16,500.
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Avoid the temptation to maximize yield at the expense of safety. Nearing retirement, you do not have as much time as a younger person to make up market losses. Avoid reaching for yield in junk bond funds and similar investments.
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References
Resources
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