Retirement and Pension Planning.
Even though you know it’s good for your long-term financial health, deciding how to save for retirement can be less than appealing. The good news is that you can knock this off your to-do list quickly. Here’s how to start a retirement fund.
Your first job is to decide where you want to do your retirement saving, retirement accounts are generally broken into two types: Workplace or Private.
Workplace pension schemes. Many employers offer retirement savings plans, such as 401(k)s, to employees. If you choose to participate, a portion of each paycheck will be automatically sent to your pension account in the retirement plan.
Private pensions or individual retirement accounts. Everyone with earned income is eligible to have their own private pension or individual retirement account (IRA). You can open an IRA at most major brokerages. As with 401(k)s, “with an IRA, automating your contributions is so important,” says Maggie Rapplean, a certified financial planner (CFP) at Moneta. Automated savings is the surest way to get on track and stay on track, and it’s generally free and easy to set up automated transfers from your bank account to your pension.
You don’t have to pick just one of these, of course. You can contribute to a workplace retirement plan and a personal pension at the same time.
When it comes to expats and offshore workers, “The chance to build retirement savings that will be 100% tax free is something everyone should consider,” says David D’Eredita, founder of Rise Private Wealth Management in Tucson, Ariz.
Aim to Save at Least 10% of Your Income Each Year Automatically-An all too common mistake new investors make is that they focus on what to invest in, rather than how much to invest.
“Younger investors get really hung up on the investment choices, when the focus really should be on your savings rate,” says Rapplean. Academic research suggests someone in their 20s needs to aim to save at least 10%. 15% is even better—to land at retirement in solid shape. If you get a later start, you will want to aim to save even more.
If you can’t reach that threshold right now, don’t get disheartened. Many people can’t; it’s equally important to get any amount of money you can into the market to start benefiting from compounding returns. Even small sums can become small fortunes over decades.
The Younger You Are the More You Should Lean into Stocks
Over the long term, stocks offer the best chance of growing your money at a rate that exceeds the rate of inflation that decreases your purchasing power each year. But you probably don’t want to put all of your money into stocks because they go through stretches where they fall in value, sometimes drastically. That’s where bonds come into play: When your stock portfolio hits a rough patch, bonds tend to hold their value and often rise.
The decision you face, then, is determining the right mix of stocks and bonds to help you reach your retirement goals…and keep sleeping at night.
The younger you are, the more you want to own stocks as you have decades until retirement. For someone in their 20s or 30s, it’s typically recommended to keep 80% or so of your retirement money in stocks. As you age this becomes more conservative to include greater percentages of bonds and bond funds. This way, you’re less likely to face enormous losses when you have less time to recover from them.
Another option if you want to fine tune your mix of stocks and bonds, rather than rely on the off-the-shelf allocation model, is to create a portfolio of two or three broad index funds or exchange-traded funds (ETFs). The only catch with building your own retirement portfolio of mutual funds is that you are in charge of making periodic adjustments to make sure you stay true to your target asset allocation mix. If the prospect of rebalancing and regular upkeep is a turn off, no worries, that's where financial advisors come in.
If you want to discuss you and your family's retirement requirements, contact me, I will be happy to help with whatever questions you may have.
Rob.
E:robert.gourlay@holbornassets.com T:(+6) 01151565649 W:www.rgwealthsolutions.com