Take it a step at a time. The first step toward smart retirement planning is opening a retirement savings account and managing it. Here are five basic things that retirement savers often do wrong, as well as some better approaches.
- Saving the minimum. Chances are your employer offers a minimum savings suggestion -- often 3 percent. There's nothing magical about this number. It's generally chosen because it is so low that it won't scare off even the most reluctant savers. Go for the gold. Up your savings until the total percentage between what you save and your employer match is at least 10 percent of your earnings -- 15 percent is better.
- Having no savings goal. It's like driving with no destination in mind. How do you know when you've arrived? Use Bankrate.com's retirement savings calculator to estimate how much you'll need, then set your savings goal accordingly.
- Failing to understand your investment choices. Company-sponsored retirement plans are offering an increasing number of investment choices, but they often duplicate and overlap each other. Spreading your money around indiscriminately is not diversification. Take time to read about and understand your choices. If your plan offers exchange traded and/or index funds, that's often a good place to start because they mirror the market and provide opportunity as well as some likelihood of safety. Also, if you have access to someone who is really expert in your company's plan, consider seeking that person's advice.
- Having no allocation strategy. Devising an allocation strategy is a critical next step. A conservative approach is 60 percent stocks and 40 percent bonds. If you stick to this basic division and rebalance your savings account to adhere to it at least a couple of times per year, you may not have a whiz-bang portfolio, but you'll be automatically buying low and selling high.
- Being paralyzed. Too many choices. Too much at stake. If you can't bring yourself to even open the quarterly 401(k) report, it's definitely time to seek help. This is your life. Get moving.