We've talked about planning for retirement at the beginning of one's career, and also strategies for those in their 30s. However, the average age of MOSERS covered active state employees is 43. With the majority of our active members near the peak of their careers, what steps can they take to ensure a successful retirement? The following are some tips on retirement planning for those in their 40s, whether just beginning to save, or continuing to do so.

Put Your Raises to Good Use

As we mentioned, most employees reach the peak of their career in their 40s. Your salary should reflect this. You are most likely being paid more now than at any other point in your life. As you continue to climb the ladder in your respective field, pay close attention to your salary increases. If you are comfortable living on what you currently bring home, take advantage of any future raises you receive by immediately saving 75% of the amount in your deferred compensation account, IRA or other savings vehicle (assuming you have not reached the limit imposed by law). This is a very easy way to accumulate extra savings for retirement.

Focus on Lowering Living Costs

If you can lower your current living costs, you'll have more money to put away for later in life. One way to do this is to pay off your mortgage. Most people don't realize that after 15 years of payments on a 30-year mortgage, only about one quarter of the principal has been paid on the home. More of your payments have gone to interest than toward reducing the balance on the amount of the loan. If you can allocate a larger portion of money to your mortgage payment each month, you'll be paying off more of the principal and less on interest. Aggressively paying off your home mortgage may leave you with a significant amount of money to save each month for retirement, or to use for other expenses once you retire. However, if you have a significant amount of consumer debt, you may want to consider paying off that debt before paying off your mortgage early because:

• the interest rate on your consumer debt may be higher than the interest rate you are paying on your mortgage, and
• the interest paid on your consumer debt may not be deductible, while the interest paid on your mortgage usually is deductible. (The tax consequence of home loans versus other consumer loans should be discussed with a tax advisor.)

Don't Focus on Overly Aggressive Funds

We all know that investment markets are volatile. We've seen its tremendous successes and pitfalls over our lives. When saving at a young age, it is common to invest in aggressive stocks. However, as we age, we have less time before retirement in which to make up for the inevitable market dips. Saving in your 40s should concentrate on lower risk investments, such as conservative mutual funds and bonds. Common investment advice says to subtract your age plus 25 from 100. For example, if you are currently 45, add 45 + 25 to get 70, subtract from 100 to get 30. The number you are left with is the percentage of your savings that you could invest as aggressively as you wish. The remaining should be invested more conservatively.

Review Performance

Take a look at your savings plan so far. What has gone well for you over the years? What hasn't done as well? What could you do better or differently? If you started saving early, take stock of how much you have contributed, and how much you have earned in investment returns. There is still time in your 40s to change or rearrange your savings strategy in areas that haven't been as lucrative as you had anticipated.

One Size Doesn't Fit All

Keep your personal situation in mind when evaluating these suggestions. Remember that one size does not fit all. Pick the ideas that will work best for you. Also keep in mind that MOSERS staff cannot provide financial planning advice, so all investment activities should be discussed with an expert before action is taken.

It's Not Too Late

It's not too late to get started on a savings plan, or to continue to contribute to your current retirement investments. The tips mentioned here are just a few things that you may choose to adopt. There are numerous sources for advice - books, magazines, newspapers, and websites to mention a few. If you have further questions regarding your retirement savings plans, we suggest you contact your financial advisor.

Source: MOSERS - PensionsPlus On-Line Newsletter - Fall 2005