Retirement may seem light-years away, but in reality it’ll be here before you know it. Creating a retirement investment strategy is far easier while you’re young than it will be when you’re 50. Compounding interest on early-life investing stretches your contributions into a nice big pile of retirement funds. By starting early, if life throws you a curveball down the road and you need to refocus on short-term problems, you'll have much of the retirement burden under your belt.
Write down your retirement goal. The National Endowment for Financial Education recommends that you set concrete, specific goals that will help you come up with reasonable strategies to make them actionable. Keep your retirement goals in front of you so that you don’t lose track of your long-term vision when other, more immediate goals pop up.
Project how much you’ll need to save. There are many free calculators on the Internet that can help you plan your savings amount and needed return on investments. Simple ones are available at sites such as Yahoo! Finance or MSN Money, but people looking for more sophisticated planning tools can turn to some new free planning sites such as Voyant, SimpliFi or ESPlannerBasic.
Save into your 401k or other similar workplace plan, such as a 403b or SIMPLE IRA. Your employer might offer matching contributions for dollars you contribute. Money grows tax deferred and isn’t taxed before it enters the plan, giving you larger contributions. 401k plans offer a range of investment options that differ from employer to employer.
Research Roth IRAs to see if you can also contribute to this tax-free retirement tax shelter. Roth IRA plans allow contributions to people who earn up to a maximum income cap, which changes frequently. To find out if you qualify, go to IRS.gov and type “Roth IRA contribution limits” into the search box in the upper right corner of the home page. Your search results will show current cap levels.
Choose retirement investments based on your goals. Although investments such as CDs and money markets are secure investment choices, they rarely beat inflation. To save enough for retirement, you’ll need to save nearly dollar-for-dollar what you’ll need in your retirement years. You should look toward more aggressive investments that beat inflation over long periods, such as stocks and bonds. Mutual funds are popular with investors because they offer professional management and diversification. To find funds that fit your goals, use one of the many popular mutual fund screening tools available online.
As a former financial advisor to companies and individuals for 16 years, Joe Andrews knows financial planning and marketing from start-ups to personal budgets. He also writes on motor racing, board games and travel. Andrews received his B.A. from Michigan State University in English. He is currently working on a young adult novel.