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Retirement: What Should I Save, When? Article by

Who can save for retirement? It's hard enough just keeping up with today's expenses. But like it or not, a fairy godmother is not going to appear in your later life to take care of you. You need to plan ahead, and the sooner the better.

The younger you start saving, the more you benefit from compounding, meaning your money makes money. The longer you wait, the more money it takes to reach the same financial goal.

Generally our retirement years are funded by pensions, personal savings and social security. A pension is a job perk generally offering a fixed lifetime income during retirement. Employees rarely pay into this plan, as its fully funded by their employer. Other forms of pensions include defined-contribution plans, which allows your own cash contribution like profit-sharing plans, and employee stock ownership plans (ESOPs), where employees purchase stock from the company. So the more money the company earns, the better the employee. (Though we all know what happened with Enron. So use ESOPs at your own risk.)

401(k) retirement savings plans are possibly the best and most convenient ways to save. With a 401(k), your employer sets aside a certain amount of money from your paycheck each month. This contribution is tax exempt, so your net income isn't effected quite as dramatically as it would be under pre-tax circumstances. Because the money is funded before you even see it, 401(k) plans are excellent for people with limited discipline. If your employers offers a 401(k) plan, it's in your best interest to make the maximum allowable contribution.

If you're self-employed, you should open a Keogh plan. This may include a profit-sharing Keogh, usually the best to start with giving you high contribution limits and the affiliated tax deduction, a money-purchase Keogh, best for higher income individuals, a combination Keogh, merging the first two options by offering the largest contribution with the ability to pull back if money ever gets tight, and finally the defined-benefit Keogh, offering a fixed annual retirement income, ideal for those 50 or older at retirement. If you have absolutely no employees, you can also invest in a Simplified Employee Pension, or SEP. SEPs are much like profit-sharing Keoghs, but handled as an Individual Retirement Account (IRA).
When allocating your funds, a rule of thumb is to invest aggressively through your 20s and 30s, balancing risk in your 40s and 50s, then remaining conservative thereafter. Aggressive investments include large cap stocks, with small cap and foreign stocks being a moderate, fixed income and cash investments being conservative, low-growth options. While allocation can be complicated, try this old trick: Subtract your age from 100. Invest the percentage equal to your age in bonds and the remainder in stocks. Once you've established your ideal asset allocation, review it annually to ensure you have the best pool for your savings goal, income level, tax bracket and tolerance level.
So whether your 20 or 55, your retirement savings plan is a critical factor in your overall financial health. Plan it, review it and ensure for your security in years to come. If you have questions or need professional guidance, schedule an appointment with a qualified investment company.

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