Whether nearing retirement or just beginning your career it makes sense to consider how you will get to your ultimate goal and where you are on that journey.

Age Related Factors to Consider

YOUNG INVESTORS

Even if you just started your 401(k) plan, it makes more sense to keep your money invested for the long haul – something is always better than nothing and the power of compounding returns is immense.

Thinking there is plenty of time to recoup anything you take out in your early years is a recipe for being financially unprepared come retirement time.

Though it can be tempting to access those funds early on to purchase a car or your first home, you would be throwing away many times the future value of those investments by not letting them they have a chance to “mature.”

Additionally, it makes even more sense to maximize your contribution and the match your employer gives as the more money going into your 401(k) sooner the better. The more time money has to work the greater the impact of compounding. This is precisely why someone that starts saving later must contribute more to keep up with the person that started right away.

Also, when you are younger growth is the main focus as opposed to income when you come closer to retirement. Allocate accordingly and as time goes on whittle down your risk.

OLDER INVESTORS

If your fortunate enough to have a nest egg that allows for early retirement, we now know you can call it a career at 55 and begin taking distributions from your current 401(k) rather than waiting till 59 ½.

For those on the opposite end playing catch up, the benefit of being able to contribute higher amounts to “make up” the shortfall is available.

Whether you have fallen behind your retirement goals due to a period of unemployment or just the inability to contribute for a while, the higher contribution allowance gives you the opportunity to ramp up savings on an accelerated scale.

If you are playing the catch up game, be sure not to overexpose your 401(k) to risk in the name of returns. It is much worse to have an oversized chunk of your retirement savings disappear in a market crash than it is to be a little light on your target nest egg.

In fact, if you are 55 or older you may want to sit down with a financial professional to decide how much of your savings should go into short-term fixed assets, like certificates of deposit (CDs). They earn very little, but it locks in a portion of your retirement funds that you plan to access in the next few years.

Also noteworthy, for those that plan to keep working past 59 ½ or do not need the funds right away and prefer to keep them invested, it is not mandatory to begin taking distributions at that age. That is just the earliest you can do so without penalty. The mandatory age at which you must start taking minimum distributions is 70 ½.

Posted Using LeoFinance