Road To Retirement: The Middle Years

If you're in your 30s or 40s, the idea of saving for retirement shouldn't be new to you. You're probably already participating in your employer's 401(k) or other plan or investing on your own through an Individual Retirement Account.

Still, investing for retirement may not be the only financial goal you have. You may be saving for a new home or your child's education. And, while you realize the importance of increasing your retirement plan contribution, it may seem that other priorities have a previous claim on your money. What can you do to ensure that you'll have enough in your retirement account to live comfortably after you stop working?

Time Is Your Ally

When it comes to saving for retirement, the middle years—when you're generally well established in your career—are critical to the growth of your account. With 25 to 30 years before you retire, you may decide to place a large portion of your retirement investments in securities such as stocks that offer the potential for higher returns. Only you can decide how much investment risk you're comfortable with. However, with several years before you'll need your retirement plan money, investing in stocks—which historically have always recovered from any decline in value—offers the potential for growth that you need to protect your retirement account against the ravages of inflation.

Increase Your Contribution

You may think that stretching your paycheck any further than you already do will be an impossible task. But you're likely to find some extra dollars to invest if you really look.

By this time, you may have accumulated substantial personal assets. Make a list of them—checking and savings accounts, investments, your home or other real estate, and your pension and retirement accounts—-so that you'll know exactly what you currently have. After determining your monthly income from all sources, list your expenses, including mortgage payments, taxes, credit card bills, food, utilities, entertainment, and so on, and subtract them.

Now that you know how much you have left after you pay your bills, drawing up a budget that earmarks a certain percentage of your income for saving or investing can help you increase your retirement plan contribution. You may decide to put as much as you can afford in your employer's tax-deferred plan, making sure to contribute at least as much as your employer will match.

Protect Your Retirement Assets

While some retirement plans allow you to borrow from your account to help with certain expenses—such as buying a house or paying for college—be cautious about using a loan option. While it's true that you'll be paying the principal and interest back to yourself, you'll also be losing out on the growth potential of any funds you borrow.

By contributing the maximum amount to your retirement plan and putting as much money as you are comfortable with into investments with the potential to earn higher returns, you'll be well on your way to a secure future.