Few things ever go exactly according to plan. That’s true for life and it’s true for creating a retirement plan.
The textbook version of retirement planning has us all gainfully employed in our early 20s in a position that enables us to save and invest a considerable sum each month. Work continues uninterrupted for the next several decades until at some point the savings we’ve amassed take on a hockey-stick level of growth.
In reality, though, not everyone has such a steady path from their first job through to their last job. Life intervenes. Some of us are laid off. Some of us elect to take time off to raise children. Some of us find we must cut back to help aging parents. Or we continue working, but sacrifice a steady paycheck to start our own business.
These might sound like blips, but they can turn into years-long events that wreak havoc on a financial planner’s schedule.
While it’s good to plan for retirement, it’s essential to also plan for a few curveballs. Here are some tips for keeping your retirement savings on track even when your life plan pauses or veers off course.
- Start early. One of the reasons it’s so important to start saving and investing early, is because there’s no saying what might happen a decade or two down the road. Even if you work steadily, you might switch jobs and go through periods where you have to wait to contribute to a 401K. So start racking up the savings while the getting is good. If nothing else, it will provide a cushion down the road.
- Consolidate. One consequence of increased job hopping – and increased retirement savings options being offered by employers – is that you can very likely amass multiple accounts, each holding a piece of your retirement nest egg. Not only does this leave you at risk of simply forgetting where your money is, but it prevents you from taking a strategic view to your investments with regard to overall level of risk and diversification. When moving to a new job, make a point of rolling over your old accounts so all your money is in one place.
- Continue to save and invest. This tip might fall squarely into the “easier said than done” category since we all know it’s easier to save money when you’re generating income. You may not be able to save much as a stay-at-home mom, a new entrepreneur, or a contract worker between jobs, but it’s better to save a small amount than nothing at all. During these times of turmoil, keep in mind that you don’t need to take an “all-or-nothing” approach to savings. You may not be in a position to sock away 15% of a six-figure income, but if you’re bringing in any money at all, try your best to commit to saving some of it. This can be done pretty simply by investing in an IRA. These small amounts will add up in the same way larger amounts do, and help you maintain the savings discipline.
- Explore ways to invest small amounts in individual stocks. Here’s a silver lining to the unexpected life events that leave you untethered from a steady job and automatic 401K contributions: It’s an opportunity to play the stock market more directly. If you feel reasonably comfortable with the investments you’ve accumulated to date, this may be a good time to open a brokerage account and research stocks from different sectors. It’s an approach to investing that few of us use now that there are so many mutual funds to choose from, but investing in individual stocks can give you more flexibility to buy and sell as in response to market conditions. It’s also an opportunity to really study the market, which brings us to the final tip…
- Study the market. Think of investing as a muscle that needs to be flexed. Just because you may not be investing in the same volume that you once did, it doesn’t mean you should stop watching the market and the holdings you’ve amassed. It’s arguably a time when you should be more watchful than ever of your investments. Remember that even moderately aggressive investment strategies will most likely involve stock holdings, so it’s important to have some firsthand understanding of the market. When we put our money in mutual funds, we’re often paying an expert to watch the market for us. But there’s great value in taking a more hands-on approach.
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