Saving for retirement is such a huge aspect of one's financial life. It can mean the difference between eating dog food in a cardboard box or eating caviar on a beach. I know which one I prefer. Investing for retirement doesn't have to be difficult. The key is to avoid the big mistake of not saving and investing.
Start as early as possible
Starting to invest as soon as you can is a big factor in determining the amount of money you'll have for retirement. Every year you delay investing increases the amount you need to save in order to reach the same goal. That's the nature of compound interest. Time in the market is much more important than getting the perfect asset allocation.
Automatically increase your contributions
Going hand in hand with starting early, is to automatically increase your contributions. If you can only afford to contribute 5% in the first year that's fine. But as you get raises you need to scale your contribution percentage up at least by the same percentage as the raise, preferably more. Most retirement programs have the ability to automatically increase your percentages each year. Take advantage of that for a more hands off approach.
Watch your expense ratios
Those pesky fees can be a big drag on your returns. The expense ratio is the percentage of assets that mutual fund companies take each year for their management services. That's whether the fund was +30% or -10%. A 1% expense ratio can reduce your ending balance by over 20% over a 30 year period compared to a 0.20% expense ratio.
Consolidate your retirement accounts
The average baby boomer born between 1957 and 1964 held 11.3 jobs between the ages of 18-46. With the deterioration of the two way loyalty street between employer-employee, young workers are expected to increase that job count number. With each new job comes a new retirement account. Move your funds into one or two accounts to simplify your retirement picture as you change jobs. Plus you'd hate to find out you had an extra $50,000 sitting in an account that you had forgotten about. Click here to find lost superannuation.
Avoid mainstream financial news
Ignore the noise that is the financial news. Sticking with your investment strategy doesn't get viewers which means no advertising money. The way to get viewers is to sensationalize the news. It's always either doom and gloom or everyone's going to make millions in the next market run. It just plain doesn't work that way. Come up with an investment strategy and risk tolerance that you're comfortable with and stick to it.
Saving for retirement doesn't have to be difficult and for the vast majority of people a simple approach of index investing will do very well for them. The key though is to start early and increase your contributions. The markets will take care of the rest and you'll be able to enjoy your much deserved retirement.