For most of us, money saved in a 401(k) will provide a big portion of our retirement income.
The Employee Benefit Research Institute (EBRI), a nonprofit think tank funded by financial services companies, held a seminar last week on the question, "Is There a Future for Retirement?" Much of the discussion centered on how to shore up 401(k) savings plans to help workers save at least enough to replace 50 percent of their income at retirement.
Here are five of the retirement planning suggestions made by speakers at the conference that all of us can do without any help from our employers.
- Save at least 10 percent of your salary. If you think that's too much, then start with a minimum of 6 percent and build up 1 percent per year until you get to 10 percent. If you can manage it, saving 15 percent of salary improves the chance of a comfortable retirement significantly.
- Diversify your investments. Investment gurus are saying that the "new normal" return on stocks covered by the S&P is 6.5 percent, down from a 9 percent average over the last century. Instead of putting all your money in U.S. equities, consider upping your return by adding commodities, REITs and global bonds to your savings strategy. Balance the added risk with some TIPs -- U.S. bonds that pay more when inflation rates rise.
- Don't take your money out of your 401(k). The odds of successfully saving enough money for retiring drop exponentially when people don't save steadily throughout their working lives. If you have a financial crisis, borrowing isn't so bad. Loans from 401(k)s have gotten a bad rap, but research presented at the conference showed that borrowing money from a 401(k) and paying it back has almost no impact on the total available at retirement, while permanently taking money out devastates success rates.
- Get expert help. Every 401(k) plan is different and so is everyone's personal situation. One of the EBRI gurus said facetiously that retirement planning is so complicated these days that each of us needs our own personal actuary to help us devise a plan. Obviously, that won't work, but it suggests that it's wise to get some expert help while there's still time to make corrections.
- Avoid poor health and debt. These are the two big factors that increase the amount of money that people need for retirement and also keep them from saving enough before retirement. So exercise, watch your weight and keep your credit cards in your pocket.