National Save for Retirement Week

October 8, 2009
By Kevin Cafferty

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In honor of the upcoming National Save for Retirement Week (October 18-24), we thought it was a good time to inspire people to take a second look - a re-evaluation, if you will - at their current savings habits.

Too often we'll just tick a percentage on our 401k (if we're even doing that) and expect everything to work out. Recent economic news has proven this method of thinking wrong.

The best way to guard against losing your shirt in another stock market collapse (particularly if you're over 40) is to diversify your portfolio - on top of that 401k contribution, set aside a percentage of your paycheck (anything over a certain amount) to be shuttled directly into a high-yield savings account. For those of you who are still receiving cost-of-living raises (I know there aren't that many of you, but this trend could change once we emerge from current economic woes), you'll be putting more and more money away as time passes. This increased savings amount, coupled with compounding interest rates (that's when you start to earn interest on the interest you've already earned), in addition to 401k savings, can help ensure that you won't be caught too unawares as retirement approaches.

Another benefit is this account can double as an emergency savings account. Financial experts suggest keeping a cushion of 3-6 months of expenses in an easily accessible fund for emergency purposes. If you keep on this savings plan, eventually you'll have this recommended savings cushion and beyond.

It's been said that you should hope for the best in life and prepare for the worst. Increasing your savings rate allows you to do both simultaneously.