|
Answer:
Dear
Donald,
You're
absolutely right -- that as you grow older, you need
to make adjustments to your financial goals and to
your portfolio. However, there are two constants that
do not change with age. It's very important that you
keep them in mind.
(1)
The first is that you always maintain an emergency
nest egg. I recommend keeping a minimum of three to
six months of living expenses in a safe haven, such
as bank CDs or a money market fund. You need to be
prepared for job loss, illness or any other financially
draining events that might occur.
(2)
The second constant is that you continually save
for your retirement, right up until it actually happens.
General
Guidelines
The
following guidelines should be modified depending
upon your income, your family responsibilities, your
health and whether or not you will be inheriting money.
In
your twenties...
Begin
by signing up for your company's retirement plan,
such as a 401(k) plan. If your company does not have
a plan, open your own Roth IRA. If you can afford
it, do both. You can open an IRA here at BUYandHOLD.
Click
here to open an account, or to learn
more.
Keep
in mind that you can tap into your Roth for a first-time
home purchase.
At
this point in your life, much of your portfolio can
be in carefully selected growth stocks.
In
your thirties...
At
this point you may have children. If so, it seems
quite logical to start saving for their education.
By all means do so if you're making enough money,
but not at the expense of your retirement savings.
You can always borrow money for college or your children
may get various scholarships.
So,
keep on funding your 401(k) and/or IRA.
Your
portfolio can continue to consist largely of growth
stocks.
In
your forties...
In
addition to funding your retirement plan, take a look
at your mortgage. If you think you will stay in your
home for a number of years, you may want to refinance
your mortgage. Your goal is to be mortgage free upon
retirement.
Shift
some of your portfolio into dividend paying stocks
and bonds or bond funds.
In
your fifties...
Look
into the "catch-up" provisions for IRAs and 401(k)s.
These allow you to contribute more each year, now
that you are older.
Get
an estimate of your Social Security benefits (www.ssa.gov)
and for any pensions you may receive. You want to
see how much more you'll need to put aside to have
a comfortable retirement.
$Tip:
Log on to: www.choosetosave.org
and use the site's financial calculators to help determine
how much you need to be saving toward retirement every
year.
It
would be appropriate now to shift some of your portfolio
into slightly more conservative stocks during this
decade of your life.
How
Much Where & When?
We've
discussed formula investing before. But in case you
missed that column, it bears repeating. Formula investing
should be used only as a guideline -- do not follow
it blindly.
The
formula:
Subtract
your age from 100. That gives you the percentage of
your assets that theoretically should be in stocks.
The
rest would be in more conservative investments, such
as Treasuries, high-rated corporate and/or municipal
bonds, bank CDs and money market funds.
So,
according to the formula, if you are 30 years old,
then 70% of your investments should be in stocks.
When you hit 40, that percentage changes to 60%. And,
come 50, half of your portfolio would be in stocks.
The
theory behind the formula is that upon retirement
you will need a steady stream of income from bonds,
Treasuries and cash accounts -- all lower in risk
than stocks.
Caution:
The formula is not perfect, however. Because Americans
are living longer and longer, people in their fifties
and sixties should consider having a slightly higher
percentage in growth stocks and in dividend-paying
stocks, especially if they have sizeable savings.
Good
luck!
|
