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Retirement investors should start early

Friday, January 20, 2012

Recent data indicates that fewer than 1 percent of U.S. savers have accumulated enough wealth to live comfortably in retirement, but there are strategies that investors can utilize in order to create the nest egg they will need for when they want to stop working.

Data provided by the Employee Benefit Research Institute and reported by SmartMoney indicates that only 0.2 percent of savers have accumulated more than $1 million in their 401(k) plans. Even among individuals who are at least 55 and have been making contributions for more than 20 years, only 2 percent have managed to accumulate more than $1 million in their 401(k) plans.

In order to ensure that they have enough money to retire comfortably, investors have many strategies they can utilize. One crucial element of retirement planning that is needed to save up an adequate amount is starting early, according to Investopedia. Saving for an event that will not happen for decades could seem intimidating, but individuals can simplify the process by participating in retirement plans and setting up regular, automated contributions to these accounts.

Many employers offer 401(k) plans, and in some cases the company will match the contribution of the plan participant dollar for dollar up to a certain point. Individuals saving for retirement might also gain access to free financial advice in terms of how they should construct their investment portfolio.

If an investor planning for retirement does not have access to a 401(k) plan through his employer, he can look into individual retirement accounts (IRAs). These accounts also offer investors the ability to set up regular contributions. Individuals can choose between traditional IRAs or Roth IRAs. While the first type involves tax deductible contributions and taxes distributions, the latter involves contributions made from after-tax income that are taxed when taken out.

Choosing the right allocation of assets is also important to accumulate the correct amount of wealth, according to the media outlet. An investor's portfolio should be divided between various equities and debt-based instruments. Individuals can pick from growth or value stocks, dividend paying stocks or exchange-traded funds.

Portfolio diversification is another crucial component to wealth creation and preservation. Diversifying involves utilizing assets that do not correlate, or move in tandem with each other. This task has become more difficult in the recent down market as assets have started to correlate more strongly.

Regardless of what strategies are utilized by people planning for retirement, investment is inherently risky. Individuals who are purchasing assets for their portfolios might benefit from consulting discount brokers.
 

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