October 18 kicks off National Save for Retirement Week. Never heard of it? Don’t worry, because I don’t think many people have. Celebrated the third week of October, it’s a national effort to raise public awareness about the importance of saving for retirement. Dating back to 2006, it’s the first congressionally endorsed national effort that encourages employers to promote the benefits for saving through employer-sponsored plans.
Regardless of where you are in your career, it’s a good time to stop and make sure that you’ve got the big rocks covered. I list three to start.
Save at least 12–15% of your income. This is a good target, keeping in mind that this figure represents both your deferrals as well as any employer match. If you’re saving more, that’s great—keep it up. If you’re not quite in this range yet, make sure you’re investing at least enough to get the company match, and set an automatic annual deferral increase of 1–2% so that you can get there in relatively short order.
Make full use of tax-advantaged accounts. One of the best ways to maximize after-tax wealth potential is to take full advantage of the tax benefits offered by your employer-sponsored retirement plan and IRAs. The decision to use traditional or Roth is less important than the decision to use a tax-advantaged account.
Make sure you have the right asset allocation. You should expect retirement to last more than three decades. And you’re still investing to get to retirement, so that means overall you have a very long time horizon. So this means that you should be concerned about keeping pace with, or better yet outpacing, the long-term effects of inflation. As a result, you need to consider a healthy allocation to growth investments such as stocks. Think globally by investing in low-cost, broadly diversified U.S. and non-U.S. stock funds. If you don’t want to assemble your own portfolio, you could consider a target-date retirement fund that provides a diversified, age-appropriate asset allocation.
You won’t find a greeting card or TV week-long cable series to celebrate retirement saving. But hopefully you’ll do your part by re-evaluating your own retirement plan to make sure you’re on track. At Vanguard, we have a fun, educational schedule of events on our website and social media sites. In the spirit of National Save for Retirement Week, spread the word!
Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
Investments in stocks issued by non-U.S. companies are subject to risks including country/regional risk and currency risk.
Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the work force. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target date funds is not guaranteed at any time, including on or after the target date.