Getting started with retirement planning

No matter whether privatization of Social Security happens or not, it has definitely made Americans more aware of their personal finances and retirement. Let us take a look at what Michael from Salt Lake City writes, "I am closely following the Social Security privatization debate. Since there is so much misleading information out there, I am as confused as any other American. (Related article: Americans confused about Social Security privatization pros and cons) But I think it is time for me to have a retirement plan since I am convinced that even if I turn out to be a winner with the personal retirement savings account, I am not so comfortable with the uncertainty. So if I want to get serious about my retirement planning, where do I start?"

That is exactly the approach that most Americans should take. Most Americans are smart enough to understand that when President Bush wants to privatize Social Security, welfare of Americans is the last priority that he has. (Related article: Bush's real agenda for privatization of Social Security) In other words, from now on Americans are basically on their own during their retirement. Therefore, planning is key.

How to plan for retirement?

If you have never truly planned for retirement in an organized manner, you might want to understand what is meant by personal portfolio management. While it may sound slightly technical, in reality it is a very simple concept. Having a personal portfolio means that you not only have assets but also have a portfolio of assets. Thus, diversification is the key word here. Most financial planners recommend a portfolio that contains:

• Real estate
• Stocks
• Bonds
• Money market account
• Savings account
• Cash
• Others like 401(k), IRA, gold, antiques, boat(s), other luxurious items that can be sold, etc.

The distribution of your assets in the portfolio will be determined by your age and appetite for risk. For instance, the rule of thumb is that if you are young (recently started to work, no major liabilities) then you can take more risks and invest in high-risk, high-reward options like stocks, and to some extent, real estate (if you buy at a good price and expect that prices will go up over time). As you age and approach retirement, you should gradually shift towards less risky options like bonds, savings accounts, etc.

How to get started?

1. It is never too late to start. If you have zero savings and have credit card debt, you can still start by developing a plan that is designed to reduce your bad debt (credit card debt) and increase your savings.
2. Secondly, come up with an allocation for your portfolio that is appropriate for your age, lifestyle, and income. Except for real estate, most of the other options do not need huge initial investments to get started. For instance, you should be able to open an online trading account with a few thousand dollars and similarly you can open an IRA with a few thousand dollars.
3. Finally, grab the "free" money. If your employer matches 401(k) contributions, you should at least start contributing as much money as to get the match from your employer. While maxing out your 401(k) is the best strategy, at least start off with what your employer gives you.

Recommended article: Retirement planning for those who hate to plan