Personal Finance November 19, 2015

    Many people don't get a chance to start saving for retirement until their 40s. If you didn't, it's not too late to start. Here are some tips to keep in mind:

    • Estimate your needs in retirement. Ideally, your retirement portfolio should be at least 25 times larger than the amount you expect to spend in your first year of retirement.1 To calculate how much you'll need, first add up sources of income outside your investment portfolio, such as Social Security benefits, pensions or rental properties. For example, if you expect to spend $90,000 during your first year of retirement, and your predictable income adds up to $40,000, you'll need to withdraw $50,000 annually from your portfolio. That means you should have $1,250,000 in your portfolio by the time you retire if your goal is to be reasonably confident your money will last throughout your retirement, adjusted for inflation.
    • Max out your 401(k) contributions. Odds are you're contributing enough to take advantage of your employer match, but we recommend setting aside the maximum deductible amount whenever you can (for the 2015 tax year, the limit was $18,000 for workers under 50). If you can afford to save even more and you meet the income requirements, consider opening and fully funding an individual retirement account (IRA). If you're self-employed, consider opening an Individual 401(k), a SEP-IRA or a SIMPLE IRA, and contributing up to the annual maximum limit.
    • Review your portfolio. "Buy and hold" may be a time-tested strategy for successful investing, but that doesn't mean you should "buy and forget." Make sure you're holding on to investments you made years ago for the right reasons. As certain investments appreciate more than others, they can become overweight and increase your exposure to risk. So, be sure to periodically check your overall asset allocation and rebalance appropriately as needed to stay on target.
    • Don't be too conservative. While it's probably inappropriate to take the same level of risk you might have taken in your 20s, it's likely too early to circle the wagons. You probably still have 20 or more years to reap potential gains from your investments, and turning too cautious now could mean coming up short in retirement. Even at this stage, it may be a good idea to have a large portion of your portfolio in equities.

    How Schwab Intelligent Portfolios® Can Help

    Schwab Intelligent Portfolios can create a portfolio of exchange-traded funds (ETFs) that is based on your goals, risk tolerance and investment time horizon, and can help keep your financial plan on track through automatic rebalancing.

    1. Source: "Is the 4% Rule Still Appropriate?" By Rob Williams, August 5, 2014.

    This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Charles Schwab & Co., Inc. (“Schwab”) recommends consultation with a qualified tax advisor, CPA, financial planner or investment manager.

    Investing involves risks including possible loss of principal.


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