It seems as if every year we make the same boring resolutions to save money, eat right, and exercise more. And then by February, you have a doughnut and a $4 coffee in your hand while driving to work and you've lost the ID card to get into your gym.
What's the trick to making New Year's resolutions stick? "Make the resolutions realistic and measurable," advises Hinda Dubin, the director of psychotherapy education at the University of Maryland. "It's helpful to write down your goals, and it's helpful to share them with a friend or significant other and ask them to help you with your resolutions."
There's perhaps nowhere goals can be more measurable and attainable than in retirement planning. Here's a list of retirement resolutions for 2008 to keep your game plan on track.
1. Save more. OK, let's put the toughest resolution right upfront: Every year, you face the unpleasant prospect of forgoing the double latte to try to save more money. Some 52 percent of U.S. households have less than $25,000 saved for retirement, including some that have saved nothing at all, according to a recent AARP survey.
It helps to set a retirement savings goal. But 61 percent of people do not know what percentage of preretirement income they will need to maintain their standard of living in retirement. You can do this calculation easily online at the AARP retirement calculator or ASEC Ballpark E$timate. Some 44 percent of the people who did a retirement calculation in the AARP survey changed their savings behavior as a result of doing so.
"If you don't have time to do the calculation, go with saving 15 percent of take-home pay over the course of your career," recommends Dan Houston, executive vice president of retirement and investor services for Principal Financial Group. Generally, that should replace 85 percent of your income in retirement.
As an added incentive, here's a peek at what other people your age have saved. For once, peer pressure might work in your favor.
2. Compare types of 401(k)'s. By now, I'm sure you're tired of hearing that you should stash enough cash in your 401(k) to get your employer's full match. But should you go with a traditional 401(k) or a Roth 401(k)?
To decide, you need to weigh your current tax rate against what you estimate your tax rate will be in the future. If your tax rate is currently higher than you think it will be in retirement, which is typical of baby boomers in their prime working years, you'll want to delay taxation by choosing a traditional 401(k) to get the tax breaks now. But if you're a young person or someone who expects to have a higher tax rate in retirement, it's better to incur tax immediately and save in a Roth 401(k).
Savvy savers can invest in both, along with IRAs and Roth IRAs, to diversify and hedge their bets against future tax increases.
3. Scrutinize your 401(k) for fees. The artful graphs on 401(k) statements may depict rising returns, but hidden fees could be eroding your nest egg more than they should. Some 83 percent of 401(k) participants don't know how much they are paying in fees and expenses on their 401(k) plans, according to the AARP.
The average 401(k) with $50,000 loses 1.2 percent of accrued income, or $599, per year to fees, but financial advisers say companies can administer 401(k)'s for as little as 0.5 percent, or $250, in fees. So ask your plan administrator how much of your retirement savings is going to fees.
4. Check for old 401(k) accounts. About 1 in 4 Americans has at least one defined-contribution account, such as a 401(k), with a former employer, according to a Fidelity Investments study. On average, those accounts have a balance of $64,000 and haven't been touched in seven years. Rolling that money over to an IRA or your current 401(k) plan, which is typically penalty free, gives you easier access to and control over your asset allocation, allows you to update beneficiaries, and gives you a great opportunity to make sure you are getting adequate returns on your investments and change them if you're not.