As mentioned in the first installment of this Retirement Planning series of guidelines, the base proposition to honestly address to yourself is: How do I prepare myself for living the years between not receiving a consistent periodic income (retirement) and my life expectancy + .20% years? I said I would share some simple, but important, guidelines that will help you start and maintain a strategic plan towards Retirement.
2. Asset LOCATION, versus Asset ALLOCATION: “Location” refers to exactly WHERE are the dollars you’re saving being put, saved, deposited, and/or invested. In other words; The type of an account is your savings being held in. Money, or assets, specifically earmarked for retirement should be optimized for longer-term growth. The easiest, and perhaps the greatest, way to achieve this is by making sure you’re utilizing every tax-free, or tax-deferred, account to its maximum capacity, first. The powerful concept here is to have the greatest rate of compounded growth on the greatest amount of money possible, so maintaining 100% of proceeds from positive returns as opposed to paying taxes on those returns. 401(k) Plans and the various types of IRAs are examples of the most commonly used “LOCATIONS” to fund with your retirement dollars first. If you haven't already, be sure to ask your employer about the 401(k) and/or other corporate saving plans available to you.
NEXT: I'll cover Asset ALLOCATION.