Financial Literacy 2007 - Retirement
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Retirement planning for people in their 30s

But bold is different than foolish. When French was realized the bulk of his fortune was tied up in Southern California condominiums and Stringworks, he decided to switch gears. "Now my focus for retirement is to vary my investments," he says. "I was pretty heavily into real estate. At the time, in the early 2000s, it was the right thing to do, but I need to expand and not have my eggs in one basket."

So French sold some property, reinvesting the profits into stocks since, historically, they've outperformed bonds. (On average, they've gained just over 10 percent annually, about twice the rate of bonds, according to Ibbotson Associates.) Sure, stocks are riskier but, French says, now is the time he feels can he afford to be aggressive. "I stay involved with where I want my money to be, but I don't manage it because I don't trust myself," he says. "I feel I'd make decisions on an emotional basis."

4. Keep company stock in check

Whether you're an entrepreneur or a salaried employee, there's much to be learned from French's commitment to paying attention to his investments. Don't fall into the trap of saving then forgetting about your assets. That includes paying attention to company stock, which all too often grows to become far too much of a given portfolio.

If your shares in the company have done well, they may now make up a big chunk of your retirement plan. In fact, company stock currently represents a full 22 percent of 401(k) assets on average. Shares in a single company also make up more than half of 401(k) balances for one out of five retirement plans, according to analysis by human resources consultancy Hewitt Associates.

That's far too high. Talk to financial planners and they'll generally agree that company stock, or any other single equity for that matter, should never exceed 10 percent of your portfolio. More than that and you put your retirement at great risk. "Your savings shouldn't be determined by the health of a single company," says Rinaldi.

5. Don't let a better job derail your retirement plan

If you've been changing jobs, or are seeking possibilities elsewhere, don't let your retirement fund take a hit. Too often, a rich opportunity has the effect of unsettling savings amassed to date. Most frequently, this happens when individuals opt to cash out a 401(k) instead of leaving it intact. According to Hewitt, 49 percent of workers in their 30s cash out of 401(k) plans when they leave jobs.

Problem is, if you do cash out before age 59½ you'll almost always owe a 10 percent penalty on top of immediately having to pay income taxes on the withdrawal, which could be end up being as high as 35 percent -- the highest current bracket. A smarter move is rolling over the 401(k) into an IRA, which you can then invest any way you want.

Bad timing is another pricey trap. That's because most employer retirement benefits make you work a period of time before you become eligible for full benefits -- known as "vesting." For example, with a 401(k), you may be able to keep 20 percent of an employer's contributions after a year, but you'll have to work another year to get an additional 20 percent and so on until you are fully vested. Pensions are structured a bit differently, with benefits usually becoming available after five years of service.

The bottom line: If you're about to pass a vesting milestone that will enable you to keep more, or all, of your employer's retirement fund contributions and pension benefits, it may be well worth it to wait before you leave for greener pastures. Ditto for quitting to care for children.

6. Start preparing for college

Now it's time to focus on other expenses. Those with little babies take note: It's never too early to think about college. Bear in mind, though, that financial advisers strongly advise that retirement savings should be your first priority.

"I see people who, early on in their careers, shorted themselves on retirement savings because they were planing for a child's college instead," says Gail Cunningham, a counselor at Consumer Credit Counseling Service in Dallas, and whose clients include retirees struggling to keep up with debts. "But when you go to college, there are work-study programs, grants, loans. There are scholarships. There are no plans like this to help with retirement. I'm not saying forget about college, but don't neglect retirement, either."

If you are determined to help your kid pay for Harvard, start early. Like any other big-ticket expense, it's easier to save a little bit over the long haul than trying to play catch-up when your kids are in high school.

The good news is that there are plenty of tax-advantaged programs designed to help families maximize their education savings. A state-sponsored 529 plan allows earnings to grow and be withdrawn tax-free if the money is spent on bona fide education expenses. What's more, your state may let you claim a deduction for making deposits.

7. Protect your earnings with disability insurance

Finally, safeguard your financial future. If you're hurt or injured and can't work, disability insurance will replace up to 60 percent of lost income, but only for a period of time. Most employers offer short-term benefits up to a couple of months. But about half of all medium- to large-sized companies provide long-term benefits of up to five years, and sometimes even for your lifetime, according to America's Health Insurance Plans, an industry group. Check to make sure you're covered. If not, and you can afford to, consider buying disability insurance on your own.

It's a similar story for life insurance. Many employers offer it. But if you're out of a job, you lose coverage. If you are short on cash, pick a term life insurance policy, which will get the most coverage for the least amount possible and allow you to lock in low, level annual rates over the long haul.

Are you worried about having enough money to retire someday? Or, do you have a plan of action? Share your story

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