Tips and to-dos from money guru Jean Chatzky
Retirement is heading your way—and you get that. You’re making progress when it comes to saving and investing, starting to strategize about what this phase of your life might actually look like. The question is: Could you be doing more? And the answer is: Yes. Here’s how.
□ Acknowledge competing goals:
Perhaps you want to buy a house—or put a child or three through college. You still have to start socking it away for your future. That's because you can't borrow for your retirement like you can for college. Two good rules of thumb to follow: Save 5% of whatever you're earning for your short-term goals (starting with your emergency cushion) and invest 15% (including matching dollars) for the long term. And if you're not meeting those thresholds today, don't panic. Consider bumping up your contributions by 2% a year until you get there.
□ Automate your savings—across the board:
The easiest way to save for any goal is automatically—and to put the money into an account that you're not likely to touch. For retirement, a 401(k), 403(b), or 457(b) plan ﬁts the bill. If you don't have an employer-sponsored plan, craft your own with regular, automatic contributions from your checking account into an IRA, Roth, SEP-IRA, or other tax-advantaged retirement account. And then do the same for your other goals—college, health care (more on this in a moment), and any others on your list.
□ Pay attention to your investment strategy:
Review your investments once a year to make sure your asset mix (mix of stocks, bonds, and short-term investments) still lines up with your goals—the movements of the markets can throw your mix out of whack. If you'd rather not deal with this, consider a single-fund solution. There are typically two types of these funds: target date funds (based on an anticipated retirement date) and target allocation funds (based on a risk tolerance and time horizon). You can also look into whether your retirement plan has a managed account oﬀering.
□ If you have one, consider maximizing the use of your HSA, too:
Used artfully, a health savings account (HSA) is not just a way to pay for your non-reimbursed medical care during your working life, it's a supplemental retirement account. Contributions can be made with pretax dollars, the money grows tax free, and when you use it to pay for qualiﬁed health care expenses in retirement (including Medicare premiums), you don't pay income taxes on the withdrawals. If you don't need the money for health care in retirement, you can use it for other living expenses and it will be taxed as if it's coming out of your 401(k). Plus, as with 401(k)s and 403(b)s, you may get "free" money from your employer just for participating.
□ Chip away at your mortgage:
If your retirement savings accounts are on track and your high-interest debt is paid oﬀ, a paid-down mortgage is another supplemental retirement account, whether you live in the home rent free or downsize and use the proceeds to beef up your nest egg. Resist the urge to use your home as an ATM through the years.
□ Benchmark your progress:
Fidelity's savings factors can help you track where you are on your journey to retirement. By age 30, save 1x your current salary. By 40, 3x. By 50, 6x. By 60, 8x. And by 67, 10x.* Not there? Again, don't panic. One option is to consider increasing your retirement contributions by 2% each year to make up the diﬀerence.
□ Schedule a checkup with an advisor or an investment professional:
At any point along your journey toward retirement, if you want to make sure you're making the most of your opportunities to invest more (particularly in a tax-advantaged way), consider sitting down with a ﬁnancial advisor. Having a person on your team who can look at your ﬁnancial situation from a holistic perspective can be valuable at many times of life—but particularly at inﬂection points, when you're trying to steer yourself from one stage of life to the next.