Get Financially Fit for 2012
Money Pros: Get financially fit for 2012 by starting to save early and by maxing out your 401(k)
The Money Pros are standing by to take your questions.
Q. I want to become financially fit in 2012. What should be my New Year’s resolutions?
A. A key part of financial fitness is having your retirement savings in place. How you think about this – and the definition of fitness – varies based on your age.
***Early 20s: Get Started
Retirement is likely more than 40 years away. It’s the last thing on your mind – but the best thing you can do for retirement in your early 20s is simple: get started.
If he waits until he’s 35, it’s harder to catch up: even if he contributes $1,000 per year for 30 years (three times the amount) his total balance at age 65 will be $125,000 ($44,000 less!).
Young people have an edge on the most seasoned Wall Street investors: time. There are many options for smaller investors (Betterment.com, an online brokerage, requires no minimum balance), and you should be taking advantage of your employer’s 401(k) plan.
***35 to Early 40s: Max Out
While the goal in your 20s is simple (just do it), by mid career you should be making the most of your earning potential and tax benefits by maxing out your 401(k).
In 2012, the maximum contribution to a traditional 401(k) will be $17,000, or $11,500 for a SIMPLE 401(k). If you can’t afford to max out your 401(k), contribute at least enough to get the matching contribution from your employer. It’s free money – you’d be crazy not to take it!
***50s and 60s: Stay the Course
Hopefully, by the time you reach your 50s and 60s, you will be in pretty good shape. It’s most important at this age to stay the course with the investment strategy you set all those years ago. Don’t make rash decisions or be influenced by volatile markets.
Now that retirement is not too far away, however, it’s time to check in to ensure that your level of risk is appropriate for your needed return. People with a long timeframe ahead of them can afford to be more aggressive with their investments than those who need the money sooner.
One final tip. Once you reach 50 you can contribute up to $5,500 more to your 401(k), so take full advantage.
Investing in your retirement is the smartest New Year’s resolution you can make in becoming financially fit in 2012.
Start now and you’ll be on track for an enjoyable retirement, free of financial worry.
Jon Stein is the CEO and co-founder of Betterment.com.