Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.
We get some great questions on the Money Matters Facebook page, including this one: “I’m in my 40s. I know I’m getting a late start on saving for retirement. What should I do from here?”
Not many of us have the foresight to open up a Roth IRA at age 20 and the discipline to save 10 or 20 percent a year through our 30s. As we make more money, we typically don’t save more. Instead we spend more – bigger house, nicer car, kids, vacations, iPads – until we wake up in a cold sweat one night at 51 wondering if we’re going to be working until we’re 82.
Even if you are approaching middle age, you can turn around your retirement prospects with a few simple steps.
1. Start. Every day counts. The following advice is worthless unless you actually put it to use.
2. Determine your objective. If you don’t know where you’re going, you will never get there. Sit down immediately and rough out a picture of your retirement life. Will you travel? Start a business? Work part time? Estimate how much monthly income you will need to fuel your vision of the good life.
3. Set a course. Figure out how much you will need to save every month to build a portfolio that will generate enough retirement income to fund your hoped-for lifestyle. Creating a budget will help you identify places where you can cut spending and re-direct money into your savings. Here some advice on how to get started: Budgeting and “economic shutdown”
4. Establish an investment strategy. I’m a big fan of what I call the bucket approach, in which you invest your funds in various complementary areas, including cash, income investments, and growth vehicles.
This is where it gets a bit more demanding. Once you settle on a strategy, you need to select the right investment vehicles to achieve your goals. I like ETFs, which are similar to mutual funds. There are so many ETFs that it’s easy to get that all-important diversification in your portfolio, regardless of your strategy. Plus, ETFs are very low cost and are tax efficient.
5. Keep an eye on things. Investing is not a set-it-and-forget-it process. Check your accounts at least every six months to see if the plan you put together still makes sense and is on track. Make changes or “rebalance” accordingly.
Sound like more than you can or want to handle alone? No surprise there. Investing is simple, but not easy. My final bit of advice for late starters: Consider getting help from a financial professional. Two great place to start your search are the websites for The Certified Financial Planner Board of Standards website and The National Association of Personal Financial Advisors.
– By Wes Moss, for Atlanta Bargain Hunter