How to begin saving for retirement

Answers to 4 important questions

You know you need to save for retirement-and you want to get started. But how? Here are answers to common questions about investing for the future:

  1. What's the first step I should take?
    If your employer offers a retirement savings plan, join it as soon as possible. Once you do, you'll be on the path to help create financial security in your retirement years. If your employer doesn't offer a retirement savings plan, you can set up an Individual Retirement Account (IRA) and start saving through there.
  2. How much should I contribute to my retirement plan?
    Contributing as much as you can or as much as allowed by your plan will boost your long-term financial security.
  3. How should I invest my plan contributions?
    If you contribute to your workplace-based retirement program, you usually have the option to decide how to invest your plan contributions.* That's why it's important for you to learn as much as you can about the investment options available and to consider how you feel about certain types of investments (for example, can you sleep at night if your funds fluctuate in price?).

    Financial experts agree that asset allocation (spreading money across different asset classes such as stocks, bonds, and cash equivalents) is a way to help reduce investment risk. And diversifying your investments within each asset class can potentially stabilize your investment returns while decreasing risk. Often, when one type of investment is up, another may be down. So having a variety of asset classes in your portfolio can help you better weather the rough spots in the market. There is no guarantee that asset allocation and diversification will ensure a profit or protect your investment against losses in declining markets.
  4. What kinds of investments are best?
    The mix of investments that is right for you depends on your age, the number of years until your retirement, your investment objectives, and your risk tolerance. There are usually a number of interactive worksheets and tools available to help you create your own strategy. Check with your plan administrator for details. But if you aren't confident about making these kinds of decisions alone, a licensed financial professional can help.

* Some contributions, such as any employer-matching contributions made to your plan account, must be invested in a specified way (such as in employer stock), as outlined in the plan documents.

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