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Investing Money for Retirement

how-much-money-do-i-need-to-invest-for-retirement

How Much Money Do I need to Invest for Retirement

How Much Money Do I need to Invest for Retirement



That depends on a whole bunch of things, like when you start investing, what you decide to invest in, and when you decide to retire.

But as a general rule, financial planners advise that every year you should invest the maximum possible in any tax-advantaged retirement plan that you're eligible for. And if you're getting started with retirement investing on the late side, you may need to invest additional money, over and beyond the money in such plans, into regular (taxable) investment accounts.



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when-do-i-need-to-start-investing-for-my-retirement

When Do I Need to Start Investing for My Retirement?

When Do I Need to Start Investing for My Retirement?



We get it: Retirement is just about the last thing on your mind when you're in your 20s. However, starting to invest for retirement as soon as you finish school and begin earning income is a brilliant financial move. The reason is a magical little thing called compounding. It's what happens when your interest keeps earning interest, year after year.

If you start early, the effects of compounding can be huge. For example, suppose you start setting aside $1,000 a year (about $19 a week) when you're 25. You put it in a retirement account earning 7% a year. Even if you stop investing completely when you turn 35 - that is, you've invested for only 10 years - your total investment will have grown to nearly $113,000 by the time you turn 65 and are ready to retire. That's right: A $10,000 investment turns into $113,000.

OK, here's where it gets really interesting. Let's say you do the same exact thing, but you don't start investing the $1,000 a year until you turn 35. And you keep on investing that much every single year until you turn 65. That is, you invest $1,000 a year for 30 years, rather than for 10 years as in the previous example. How much do you wind up with when you're 65? Only about $101,000. That's right: Even though you invest three times as much money, you wind up with less.
The earlier you start investing, the more you can benefit from compounding. That's why you need to get going as soon as possible.



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When You Invest for Retirement, You Typically Have 3 Main Options

When You Invest for Retirement, You Typically Have 3 Main Options:



1) You can put the money into a retirement account that's offered by your employer, such as a 401(k) or 403(b) plan. These plans are great deals because the money will grow tax-free until you withdraw it in retirement. What's more, you escape taxes either on the money you put into the plan or the money you withdraw from the plan, depending on whether you choose a traditional or Roth option.

2) You can put the money into a tax-advantaged retirement account of your own, such as an IRA. IRAs offer similar tax breaks to 401(k)s, though some of the eligibility rules differ.

3) You can put the money into a regular investment account that doesn't have tax advantages. The first two options are far better deals, but there are limits on how much money you can put into them each year. If you've put all the money you're allowed into tax-favored plans and you want to save even more for retirement (for example, because you got a late start in saving and need to make up for lost time), you'll have to use a regular investment account.



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What's the Best Asset Allocation for My Age?

What's the Best Asset Allocation for My Age?



The old rule of thumb used to be that you should subtract your age from 100 - and that's the percentage of your portfolio that you should keep in stocks. For example, if you're 30, you should keep 70% of your portfolio in stocks. If you're 70, you should keep 30% of your portfolio in stocks.

However, with Americans living longer and longer, many financial planners are now recommending that the rule should be closer to 110 or 120 minus your age. That's because if you need to make your money last longer, you'll need the extra growth that stocks can provide.

OK, here's where it gets really interesting. Let's say you do the same exact thing, but you don't start investing the $1,000 a year until you turn 35. And you keep on investing that much every single year until you turn 65. That is, you invest $1,000 a year for 30 years, rather than for 10 years as in the previous example. How much do you wind up with when you're 65? Only about $101,000. That's right: Even though you invest three times as much money, you wind up with less.
The earlier you start investing, the more you can benefit from compounding. That's why you need to get going as soon as possible.

how-much-should-i-save-if-i-want-to-retire-early

How Much Should I save if I want to Retire Early?

How Much Should I save if I want to Retire Early?



To step off the corporate treadmill in your 50s or early 60s and maintain anything close to your standard of living, you need a seriously big retirement kitty.

How serious? You'll likely need assets worth 10 to 16 times your salary by the time you leave your job. A 45-year-old making $120,000 who hopes to retire at age 60, say, should already have nearly $700,000 set aside.

You can get by with less if you'll have other sources of income. If that same 45-year-old has a typical old-fashioned check-a-month pension, for example, he might need only $432,000 in savings to be on track. If you expect to hold down a scaled-back job for your first decade of retirement, you can also get by with less.

Still, your target is a big number, and to reach it you'll have to save diligently, invest aggressively, and keep taxes and expenses from eroding your returns.