Pocket change

Staff Writer
Columbus Parent

Feeling a little helpless as you watch the market's ups and downs take their toll on your retirement account balances? Consider these 5 ways to super-size your nest egg.

Establish well-defined goals. If you don't know where you're going, it's tough to figure out how to get there. Determine how much money you will need to retire and then start saving the monthly amount that will help you achieve your goal. Vanguard, TD Ameritrade, Fidelity and Schwab offer free online retirement calculators.

Take full advantage of employer-provided retirement plans. At the very least, contribute enough to your 401(k) plan to receive your company's matching contribution. Don't leave money on the table! The maximum contribution to 401(k) plans for 2008 is $15,500. If you are older than age 50 (or turn 50 anytime this year) the IRS will allow you to contribute an additional $5,000.

Get to know your tax bracket and use it to your advantage. If you are in a low tax bracket, it may be to your advantage to pay off the IRS now rather than later. Tax rates are at historically low levels. Instead of deferring your payment of taxes into later years, as you would with traditional 401(k) or IRA contributions, it might be more beneficial for you to make Roth 401(k) or Roth IRA contributions. With Roth-type retirement accounts, your earnings grow tax free that's right tax free but, your contributions are not tax-deferred. This means that all of your withdrawals in retirement will be tax free, as opposed to paying ordinary income taxes upon withdrawal. Talk about super-sizing your retirement income! Even if you have a company retirement plan, you are also permitted to contribute to a Roth IRA, but you have to watch out for the income limitations. If you make too much money to contribute to a Roth, don't worry. Make non-deductible contributions to a traditional IRA and convert it to a Roth in 2010 when the income limitations will be lifted.

Develop an asset allocation policy for your investment portfolio that is based on your level of risk tolerance and STICK TO IT. Asset allocation, very simply, is the mix of equities, fixed income investments and cash that makes up your portfolio. A carefully designed asset allocation can help you increase portfolio return while reducing the overall volatility of your portfolio. Some have suggested a rule of thumb might be: 110 minus your age equals your percentage allocation to equities. This is a decent starting point, which can be adjusted based upon your own feelings about investing in the stock market. No matter your level of risk tolerance, consider investing at least 10 to 15 percent of your portfolio in the stock market. This small exposure to the potential gains of equity funds may be the only chance you have to keep up with or outpace inflation. It is important to stick to your asset allocation policy in good times and bad. Investors tend to sell out of investments that "aren't doing well." Instead, they should be selling out of investments that are doing well and buying the ones that aren't in favor. Remember the old saying, "buy low, sell high?"

Pay careful attention to investment fees. These expenses reduce your rate of return and have a dramatic impact on your portfolio value over time. Read the fine print so you know the cost of investing. In general, a Class A share in a mutual fund will cost you an up-front fee, or "load," of about 5.75 percent. There are also ongoing fees, called 12b-1 fees, which might run you an additional 1 percent per year. Compare those fees to the expenses of exchange-traded index funds, which might cost you 0.25 percent per year, with no front-end or back-end loads.

Super-size your retirement savings by paying as little in fees as possible! If you aren't comfortable designing your own investment portfolio, consider hiring a professional to help. Fee-only financial advisors charge a fee for their services and can help you to construct a portfolio of no-load funds.

Saving for retirement is no easy task. Some of us may spend more years in retirement than we did in the workforce. And these days, we're more responsible than ever for providing for our own financial future. It pays to start saving early and make the best possible choices with the funds we invest.