How to reach your retirement goals in less time.
If you’ve recently re-entered the work force you have a second job that needs your serious attention: Getting your retirement plan back on track. You may not have been able to keep up with your savings while off work, so here’s how to catch up for lost time.
Run the numbers
You may be returning to work after several years off, so you have fewer years left to build your nest egg. Our Personal Retirement Number calculator can give you an idea of how much you may need to save for a comfortable retirement.
Maximize tax-advantaged retirement accounts
Both 401(k)s and IRAs offer valuable tax breaks. Take advantage of your 401(k) by contributing as much as you can to your employer-sponsored plan, and then boost your retirement savings with contributions to your IRAs. (Learn more about 401(k) plans and IRAs.) In 2010, contribution limits for people younger than 50 are $16,500 for 401(k)s and $5,000 for IRAs.
Higher limits for those 50 and older
Jumpstart your retirement savings by taking advantage of the additional “catch-up” contributions for those 50 and older. For people in that age group, limits rise to $22,000 for a 401(k) account and $6,000 for an IRA.
Stick to your low-cost lifestyle
Now that you are back at work, don’t let go of any frugal habits you developed while you were unemployed. By spending less, you will have more left over to save for retirement. (Check out these Savings Tips.)
Optimize your retirement accounts
- Save 10-15% of your income. When you enroll in a 401(k) plan, your employer may automatically set your 401(k) contributions at just 3% of your income, but that’s too low even for young people with 40 years to save. To catch up, push yourself to contribute 10-15%. Can’t imagine socking away that much after returning to work? Start lower and increase your contribution rate by 1-2% of your income annually.
- Earmark 50% of raises for retirement savings. Commit to funneling half of all future bonuses and raises to your retirement nest egg. It’s easier to save money you haven’t yet grown accustomed to spending.
- Take advantage of a Spousal IRA. If you are married and don’t have earned income in 2010 you may still be eligible to contribute to a Spousal IRA for the 2010 tax year based on your spouse’s income. You have until April 15, 2011, to make your 2010 IRA contributions.
Balance risk and reward
- Hit the allocation sweet spot. Keep a mix of investments in your retirement accounts. Stocks provide the chance for inflation-beating gains over the long-term. Bonds typically generate lower returns than stocks, but help to reduce the overall volatility of your portfolio. A good tip is to keep the percentage of stocks and stock mutual funds in your retirement accounts at 100 minus your age. For example, a 40-year-old should consider a 60% percent stock allocation. (Keep in mind that all asset classes are not suitable for all investors. Each investor should select the asset classes for them based on their goals, time horizon and risk tolerance. Asset Allocation cannot eliminate the risk of fluctuating prices and uncertain returns.)
- Keep company stock below 10% of your total assets. You never want to bet the farm on any single company, including the one you already are dependent on for your job.
What's next? Treating savings as an expense
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