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To
enjoy a comfortable retirement
lifestyle, you will need to build your
net worth before you retire. So you may
be interested in knowing that, between
2001 and 2004, the typical household's
net worth, adjusted for inflation, grew
1.5 percent, according to a recent
Federal Reserve study.
The good news is that the
1.5 percent figure, while not appearing
large, actually represents a sizable
gain in family wealth. The not-so-good
news, from a retirement savings
standpoint, is that much of this
increase in wealth came from rising home
prices.
Why shouldn't you count on
appreciated home prices to form a key
pillar of your retirement savings? Won't
the value of your home just keep rising?
Not necessarily. While it is
true that housing prices have gone up
significantly over the last several
years, there is no guarantee that this
trend will continue. Housing prices have
certainly fallen in the past, and they
are likely to do so again.
But just as importantly,
even an extended period of rising home
prices may not help you as much as you
might think. After all, to profit from
your home, you have to sell it – but
then you have to live somewhere else.
Even if you decide to trade down, you
are likely to find that smaller homes
have also appreciated quite a bit,
meaning your sale might not net you
nearly as much as you had hoped.
To sum up: Your home may
provide you with some of the money you
will need during retirement but not all
of it. This is the reason you need to
look beyond your house and into the
world of investments. To help pay for a
retirement that may last two or three
decades, you must invest regularly at
every stage of your life.
You have two main investment
platforms: your employer-sponsored
retirement plan and your private
investment accounts. You need to pay
close attention to both of these
platforms.
For example, if you have a
401(k) plan at work, learn as much as
you can about the various investment
options available and choose the mix of
investments that can potentially provide
you with the growth you need, given your
individual risk tolerance.
Because it offers both
tax-deferred earnings and a chance to
contribute pre-tax earnings, a 401(k),
by its very nature, offers some key
advantages in saving for retirement. But
you are ultimately responsible for your
401(k) plan's success. Study your
choices, contribute as much as you can
afford, review your progress and make
adjustments as needed.
While you are contributing
to your 401(k) at work, you should also
invest steadily in your traditional or
Roth IRA. A traditional IRA offers
tax-deferred earnings, while a Roth IRA
has the potential to grow tax-free,
provided you meet certain conditions.
Finally, you want to build a
portfolio containing a diversified mix
of stocks, bonds and other securities.
Your financial professional can help you
make sure that these investments work in
conjunction with your 401(k) and IRA to
help you maximize your progress toward
your retirement goals.
If you are not already
investing consistently, start now. The
years fly by, and before you know it,
retirement will be looming. When that
day arrives, you want to be prepared.
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