Planning for your retirement has never been more important. It is a simple truth that today’s workers will be forced to rely on their own retirement resources far more than previous generations.

One study conducted for Oppenheimer Management found that almost half of all American households have no pension coverage whatsoever. At the same time, many companies are downsizing or closing altogether, forcing many workers into early retirement.

In short, those who delay preparing for their retirement in hopes that their company will provide for them are standing on very shaky ground.

Everyone knows that the future of Social Security is uncertain. Since the Social Security Trust Fund was first created in 1935, it has run at a surplus. Unfortunately, Social Security is projected to start running at a deficit in the year 2011.

Social Security may be successfully reformed so as to operate well into the future, but relying upon Social Security to provide for your future is both unwise and potentially disastrous.

Our free-enterprise system provides both the freedom and incentive to participate in the generation of wealth. If you have been putting it off, the time to plan your successful retirement is now. Your golden years should be … golden!

Step No. 1: Start immediately

There is literally no time to lose. The more time you allow to plan, save and invest for your retirement, the more money you will acquire.

For example, an 18-year-old who saves a mere one dollar a day until he is 65, and invests those savings at 15 percent interest will retire with a nest egg worth $2.65 million! (And yes, 15 percent can still be achieved if you learn how to invest wisely.)

If you wait until you are further along in years to begin planning for your retirement, you will have to significantly increase the amount you set aside each month. If you are further along in years and have not yet invested in your retirement, don’t be discouraged.

If you missed your chance to start early, then start NOW. You should begin early, but no matter what your situation, you can begin immediately.

Step No. 2: Establish clear financial goals

Consider what you want to do once you retire. Obviously, if you hope to globe-trot once you retire, you must plan for a larger nest egg than if you choose to work part-time into your 70s. The retirement life you choose will determine the way you prepare for your retirement.

Step No. 3: Make money management a habit

Wise money management will not only help you prepare for retirement, but also it will help you finance your children’s college education, care for a relative with long-term disabilities, buy a house or start a business. As the famous millionaire John Jacob Astor once declared, “Wealth is largely the result of habit.”

Make a habit of saving. A habit of regularly setting aside part of your income for your retirement is simple, even easy, yet most people never do it.

Studies show that the typical 50-year-old has a net worth of only $2,300! Habitually save at least 10 percent of your income. Consider this 10 percent of your salary the money you keep — for yourself and your family.

*Avoid overspending. Every year, the average American spends at least 95 percent of what he earned — almost everything he makes! That leaves only 5 percent of one’s earnings or less for savings, investment, retirement planning, or charitable giving. Such short-term indulgence leads to long-term regret.

*Reduce your debt load. The average American household has more than four credit cards, and carries a credit card balance in excess of $4,000. The total amount of debt owed by American consumers and businesses is in the trillions of dollars.

There are certainly times when it is both wise and necessary to take out a loan — For instance, when you decide to buy a house or start a business, but in general, practice debt avoidance.

Step No. 4: Invest wisely and widely

You cannot merely save for your retirement. If you want to avoid a drastic reduction in your standard of living, you must invest for your retirement. Hoarding money is more likely to bring poverty than prosperity.

Here are a few guidelines to put you on the path to wise investments:

• Know your needs.

Before you invest, you must take stock of your financial needs. How much money can you invest? How much risk are you willing to assume? What kinds of investments are you most comfortable with? Setting clear financial goals will help you answer most of these questions.

• Learn before you leap.

Always investigate before you invest. Take the time to research the performance, risks, long-term prospects and stability of any investment before committing your money. Don’t let anyone talk you into an investment that you’re not comfortable with.

Every investment brings risk, and often, an investment’s risk increases with its potential for wealth creation. Historically, investing in stocks has generated far greater returns in the long run than investing in government bonds and Treasury bills.

Small-company stocks generally average a greater return than the stocks of large companies, although they carry greater risk and experience more price volatility.

• Maximize capital appreciation.

Ironically, one of the most common mistakes of retirement planners is that they are too conservative with their investments. The simple truth is, in order to keep up with inflation and the rising cost of living, your investment needs to make a good return.

Yet while you aim to maximize your investment return, you must balance the hopes for a high return with the desire for low risk. According to financial consultant Tod Barnhart, “One of the most important rules of investing is that capital preservation should always exceed capital appreciation.”

• Diversify.

The old expression “Don’t put all your eggs in one basket” is wise advice to the investor. One of the best ways to invest wisely is to invest widely. Diversifying among your investments will help to decrease your risk without sacrificing significant earnings potential.

Step No. 5: Think long-term

Get-rich-quick schemes are often quick routes to disaster. Preparing for your retirement is a marathon, not a sprint.

There are many people who try to make up for years of inadequate retirement planning by aggressively gaming the market. It almost never works. Even the most seasoned Wall Street insiders often have difficulty predicting the ups and downs of the markets. Make sure you are educated before you put what you have saved at great risk.

Put these principles of retirement planning to work for you. The same steps that help you build a financially secure foundation for your golden years can also help you make wise financial decisions throughout your lifetime.

Tags: debt, money management, overspending, retirement planning, savings

This entry was posted on Tuesday, January 27th, 2009 at 5:46 pm and is filed under RETIREMENT . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.