Financial Literacy 2007 - Retirement
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Retirement savings tips for 40-somethings

3. Maintain the right mix

Asset allocation and diversification remain as important as ever. At 40 you're still a long way from retirement, so don't rush to play it too safe, says Ellen Rinaldi, executive director of investment planning and research at mutual fund company Vanguard. As a rule of thumb, Rinaldi recommends scaling back stocks to 80 percent of your portfolio and putting the balance in conservative holdings like bonds.

Maintain a broad view of all of your holdings as you reallocate assets. It's not just enough to focus on the 401(k). Look at the big picture, taking all of your investments into account.

Make sure you haven't forgotten anything, either, like a 401(k) or other benefits you may have earned at previous jobs. If it's an old 401(k), roll that into an IRA, which you can invest any way you want.

"It happens all the time, people leave money in a 401(k) and forget about it. They take more time on their vacation than they do on retirement planning," says Michael Scarborough, a money manager and author of "401(k) Knowledge."

At the same time, be really clear about what assets will be available for your retirement. Many workers are banking on support that just won't be available.

Consider this: Nearly two-thirds of wage earners between the ages of 35 and 54 believe they'll get a defined-benefit pension in retirement. But only about 30 percent of the current work force is currently enrolled in one, says Craig Copeland at EBRI.

At the same time, 38 percent of wage earners expect employers to provide lifetime health benefits. They could be in for a nasty shock. Today, 33 percent of large companies offer retiree health benefits, half as much as the 66 percent that did so in 1988, according to Hewitt Associates.

If you're not sure what you're entitled to, contact your benefits office at both current and previous jobs. While you're at it, get documentation so you can keep careful records of those benefits.

4. Make tough decisions about other expenses

Meanwhile, those with children need not be reminded about college. Ideally, you've been saving for their higher education since your kids were in diapers. If so, you'll be able to keep chipping away without diverting huge sums of cash from your retirement savings.

If you've neglected to save for college, and your retirement savings are less than robust, you may not have enough money to fund both. As a parent you'll more than likely want to take care of your kids. But financial advisers agree, retirement should be top priority. "The last time I checked there were no scholarships out there for retirement," says Lee.

Many parents often sacrifice their own retirement planning to care for kids -- even those who've already graduated from college. Forty-five percent of working individuals age 45 and older who have an adult child over age 25 provide their offspring with financial support, according to a recent report from Putnam Investments and Brightwork Partners, a research firm.

But the long-term cost of such ongoing support is high. Twenty-nine percent of older parents delay retirement, and 38 percent are saving less for retirement because they've bankrolled an older child. "When forced to make a choice, people support their own children first. They'll put themselves last," says Merle Baker, president of Brightwork Partners. "They're reconciled to working longer than they planned or expected to. Or they accept a lower quality of life. It's pretty powerful."

If you're determined to help your children, and money will be tight, look for compromises that may have less of a negative impact on retirement savings.

"Maybe it comes down to, you can't send your kid to MIT. Maybe they have to go to a local, in-state school. Maybe there are loans for kids they're eligible for, or they have to go to work. It's not a fun conversation to have, but you need to determine what the numbers are," says Dick Bellmer, president of the National Association of Personal Financial Advisors.

John Morris agrees. A father of four kids, he's been saving for their tuition over time, and he recently made his first tuition payment for his eldest son. "The experience of writing that first check to the university makes it real," he says.

But Morris isn't about to torpedo his own future, either. He had to work through college himself and says he believes that a kid who's motivated and gets good grades can find a way. "If you haven't gotten started with saving for yourself when you're in your 40s, it's hard to face past decisions and it's easy to say, 'I'm in trouble, I'm not going to do anything about it.' But you've got to pay yourself first. Even if it's a couple of hundred dollars a month. Even at 46. You have 20 years left until retirement. You can save an awful lot."

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