Financial Planning for Retirement
March 20th, 2007 by Remon
I’ve said it before and I’ll say it again; you can’t start planning your retirement too early. The younger you are the better.
Tax Deferred Accounts
Make maximum use of these accounts (IRA or SEP), it’s basically free money. You can read a bit more about this in Some tax tips for the investors.
Saving for retirement
You can save for retirment with a basic savings account. The younger you are, the more use you get out of compound growth. You’re basically saving risk-free but you can’t expect big gains like when you’re investing. If you’re young I would consider investing for retirement.
Investing for retirement
Investing for retirement if more risky than saving, but you have the possibility of higher gains as well. You can invest in a safe way or take an aggresive approach.
If you’re young you should put most of your money in stocks and the older you get the more bonds you should buy. Bonds are less risky thus giving you more security when you’re approaching retirement.
Say you’re 25 years old and retire at age 65. You have 40 years left to save for your retirement. You could start with 100% stocks now, 80% stocks by age 35, 70% stocks by age 45, 60% stocks by age 55 and 50% stocks by age 65.
To be more secure you could also put some money in a savings account like I do. I save on a savings account as well as in stocks and a few high yield bonds.
The younger you are the more risk you can take. Buying bonds only at a young age will not give you the most for your money. When you’re older though, you want security. You don’t have tens of years left to make up for a possible mistake you may make.