Pay yourself first
One secret to building financial security is to regularly pay yourself first. Choose a level of contribution that you can handle and stick with it. In a short time, you will not even notice it’s missing. Then plan to increase your contributions at least at the same rate as your pay increases.
Use time to your advantage
If you are an investor with long-term goals, time allows you to look at more volatile investments with the potential for higher rates of return. When you have time on your side, you are less likely to feel pressured to sell out of an investment after it has sunk in value, thereby “locking in” a loss. A longer time horizon also provides you with a great opportunity to put the concept of compounding returns to work for you.
Have a goal in mind
Do you want to retire early? Or maintain your pre-retirement income during retirement? These are wonderful goals, but your pension may not be enough to meet your income needs. We can help you determine what your retirement “income gap” may be and can help you create a plan to bridge the gap.
Know your tolerance for risk
It is important to set up an investment strategy with which you are comfortable. If you constantly worry about your investments or become distressed by sudden reductions in their value, your investments may not be aligned with your risk tolerance. To assess your risk tolerance, take the Risk Profile Questionnaire.
When certain types of investments are declining in value, other types may be gaining value. Diversification, putting your money in different types of investments, can help you achieve more consistent long-term performance than you will likely achieve if you put all of your money in a single type of investment. Owning several different funds that are all in the same category is NOT diversification.
Stick with a good, solid plan
Once you determine how your retirement assets should be allocated, stick with your plan. Many people fail to achieve expected results because they always try to maximize returns by moving money to “hot” investments. Often what’s hot today turns cool very quickly. Create a plan and then stick with it.
Find an advisor
If you are interested in working with someone to assist with specific portfolio recommendations, consider taking advantage of one of four financial planning services offered by Member Benefits.
The story of Jack and Jill
Take a lesson from Jack and Jill. They start out as equals: same school, same job, same salary. Smart Jill socks $50 a pay period (24 times a year) into her retirement account right away. Tardy Jack waits 10 years.
Look at what happens.* (See image below.) Jill’s contributions in the first 10 years—totaling $12,000—grow to $103,530 by age 55 even if she stops contributing at age 32. Jack, who begins investing at age 32, contributes $28,800 over 24 years, but his account value at age 55 is still less than Jill’s.
Jack contributed more money and still doesn’t catch up with Jill…all because he procrastinated.
*Your actual situation may be different from the value shown here. This example uses a projected earning rate of 7.5% for illustrative purposes only. No guarantees are expressed or implied. Results will vary depending upon the actual rate used in the calculation. Over time, the results of any investment will fluctuate and are not guaranteed.
The story of Jack and Jill illustrates the power of compounding interest or the time value of money. It pays to start saving early.
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