How to Invest for Retirement
The economic downturn of the past several years has left a large percentage of Americans truly shaken up, and far less financially secure than they were before. The markets periodically go through these swings, and the savvy investor knows to be prepared for this eventuality. But at the same time you’ve got to afford your life now, and set aside something to help build a nest egg for retirement. People are living longer than they used to, meaning lots of folks reach retirement age only to discover that they need much more money than they thought they did to maintain a quality lifestyle. Plenty of conservative and intelligent people find themselves in this predicament, so you can’t just assume it won’t happen to you. Instead, start taking actions today that will insure you are in the best possible shape to enjoy your golden years in style. Here are a couple of tips to help you invest for retirement.
First of all, before you invest a dime you should pay off all of your debts. Do a quick analysis of your situation and you’ll see the logic of this approach. No amount of savvy investing will make up for the interest you pay into credit cards, student loans and mortgage payments. So start off with the debts you are paying the highest interest rates on. Pay them down as quickly as possible, and then move on to the next lowest, until you’ve worked your way through. Once you are debt free, it will be much easier to get prepared for retirement.
With the page turned on your debts, it’s time to save. You can invest to your heart’s content, but without a proper savings plan you won’t be able to ride the waves life throws at you. It all starts with a solid emergency fund. Sock money away in a savings account until you have a full year’s worth of expenses on hand. This will help you weather the storms of the economy, and hopefully avoid having to liquidate any investments if you lose your job, become disabled or have to deal with some other unexpected circumstance. With the emergency fund secure, start a simple savings plan as well. Put together a conservative savings tool, such as a CD, so you can stick some money in there and not touch it. It won’t grow at the same rate, but it will give you peace of mind so you can turn your attention to your more aggressive investments.
As long as you have enough time, you should be able to invest in a mix of risky and conservative products to help increase your earnings. But never invest in a product you don’t fully understand, no matter how much of a ‘sure thing’ an expert tells you it is. This holds true whether you’re talking about a particular company you are considering for a stock investment, or an entire type of investing, such as futures or currency trading. If you can’t explain the business or the product to a layperson, leave it alone.
Diversification and proper investment strategy is all well and good, but your strategy will fall short if you don’t have a handle on exactly how much you will need. That’s why it’s hugely important for you to run a cash flow analysis before you get started. Take a look at your current monthly expenses, and try to extrapolate how they will grow or change as you reach retirement. Don’t forget to correct for inflation, and to paint a realistic picture of your earnings potential at 65 or 70. This will help you answer that “what age can I retire” question, because you’ll truly know how much you will need on a monthly basis to maintain a comfortable lifestyle. And remember that ‘comfort’ is a relative term. If that means elaborate vacations and first class flights, you’ll probably have to bump that final number up significantly.