Helpful Tips

Proceed With Caution Before Relying on General Retirement Rules

When investing for retirement, you're likely to hear a lot of well-meaning guidance from family, friends, and others offering advice--even the media. As you weigh the potential benefits of any commonly cited investment rules, consider that most are designed for the average situation, which means they may be wrong as often as they're right. Although such guidance is usually based on sound principles and may indeed be a good starting point, be sure to think carefully about your own personal situation before taking any tips at face value.

Following are several general retirement investing rules and related points to consider.

Pay yourself first

It's hard to argue with this conventional wisdom, which helps make saving a habit. To determine how much you may be able to save and invest, develop a written budget. In this way, you can assess how much discretionary income is available after other necessary obligations are met.

If finding extra money to save is difficult, track every dollar you spend for a week or two to see where your money goes. You may surprise yourself by identifying several areas where you can cut spending.

Better yet, most employer-sponsored retirement savings plans help you pay yourself first through payroll deductions. This is perhaps the easiest way to save money. Having the money automatically deducted from your paycheck and invested in your plan eliminates the temptation to spend before you save.

Your stock allocation should equal 100 (or 120) minus your age

A widely accepted retirement savings principle states that the younger you are, the more money you should put in stocks. Though past performance is no guarantee of future results, stocks have typically provided higher returns over the long term than other commonly held securities. As you age, you have less time to recover from downturns in the stock market; therefore, the principle states, as you approach and enter retirement, you should invest some of your more volatile growth-oriented investments in fixed-income securities such as bonds.

Teaching Your Children Basic Financial Education

Even before your children can count, they already know something about money: it's what you have to give the ice cream man to get a cone, or put in the slot to ride the rocket ship at the grocery store. So, as soon as your children begin to handle money, start teaching them how to handle it wisely.

Making allowances

Giving children allowances is a good way to begin teaching them how to save money and budget for the things they want. How much you give them depends in part on what you expect them to buy with it and how much you want them to save.

Some parents expect children to earn their allowance by doing household chores, while others attach no strings to the purse and expect children to pitch in simply because they live in the household. A compromise might be to give children small allowances coupled with opportunities to earn extra money by doing chores that fall outside their normal household responsibilities.

When it comes to giving children allowances:

  • Set parameters. Discuss with your children what they may use the money for and how much should be saved.
  • Make allowance day a routine, like payday. Give the same amount on the same day each week.
  • Consider "raises" for children who manage money well.

Questions to ask a financial planner

Choosing the right financial planner requires some homework. You must be comfortable discussing the details of your finances, goals, lifestyle and financial status. The person you choose should be trustworthy, resourceful, knowledgeable and creative in mapping out the right strategies for your financial future.

Asking the following questions can indicate how well a financial planner will be able to serve your needs:

  • In what area(s) of financial planning do you specialize, if any?
  • What continuing education courses have you taken, or are you taking, in personal financial planning?
  • Do you have any advanced degrees, certificates or financial planning credentials?
  • How often have you performed similar services in the past?
  • How long have you been providing financial planning services?
  • How are you compensated for your services?
  • What type of financial planning service do you think I need based on my concerns and goals?
  • Can you provide the names of clients or colleagues I may contact?
  • Are you able or willing to help me implement my financial plan?
  • What is your process for monitoring my financial plan?
  • Do I have to sign any agreements or engagement letters to define the scope of work?
  • Are there any conflicts of interest?

The financial services industry is highly regulated in some areas and not at all in others. Many false professional titles are used to depict people as experts in fields they are not actually experts in. This is a tactic often used to help make sales. Make sure to choose someone that can prove a proper level of competency, ethics and integrity through licensing and accreditation.