On July 4, we shoot fireworks, attend picnics, watch parades and celebrate our nation's independence and the many freedoms we enjoy.
But as you go through life, you'll find out how important it is to work towards another type of freedom — financial freedom. That's why you need to put strategies in place to help you work towards your own Financial Independence Day.
And there's no way to sugar-coat this task, because it will be challenging. In recent years, a combination of factors — including depressed housing prices, rising health care costs, frozen or eliminated pension plans, and the financial market plunge of 2008 and early 2009 — has made it more difficult for many of us to accumulate the resources we'll need to enjoy the retirement lifestyle we've envisioned. In fact, the average American family faces a 37 percent shortfall in the income they will need in retirement, according to a recent report by consulting firm McKinsey & Company.
But now that we've gotten the bad stuff out of the way, let's turn to the good news: You can do a great deal to work towards financial freedom during your retirement years. Here are some suggestions that can help:
* Save and invest more. Obviously, the younger you are, the greater the benefit you'll get by increasing your savings and investments. But whatever your age, you'll find that it pays to save and invest more. During difficult economic times, of course, it's not always easy to boost your savings and investments, but try to find ways that are as "automatic" as possible. For example, whenever you get a raise, increase your 401(k) contributions, which come directly from your paycheck. And whenever you get a "windfall," such as a tax refund, try to use part of it for your IRA or another investment account.
* Rebalance your portfolio. It's always a good idea to periodically rebalance your investments to make sure they are still aligned with your goals and risk tolerance. But it's especially important to rebalance as you get older and near retirement. At this stage, you'll want to decrease the volatility in your portfolio and lock in what gains you've achieved, so you may want to move some — but certainly not all — of your more aggressive investments into less volatile ones.
* Cut down on debts. It's easier said than done, but anything you can do to reduce your debt load will free up money to invest for your retirement. Work diligently to pay off whatever debts you can and examine your lifestyle to find areas in which you can reduce spending.
* Consider working part-time during retirement. Many Americans are now living longer and enjoying happy, healthy retirements. In fact, the concept of "retirement" has changed so that it now includes any number of activities — including part-time work in a completely different area from one's previous career. If you are willing to do even a little part-time work during your retirement years, you can greatly reduce the financial pressures you may face during this time of your life.
The 4th of July comes and goes quickly. It's time to put strategies in place to help you work towards your own Financial Independence Day.
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Edward Jones Financial Adviser Michael Quinn submitted this column. Quinn's Edward Jones office is at 25 Railroad Square, Suite 201, in Haverhill. He can be reached at 978-372-8453. Join the discussion. To comment on stories and see what others are saying, log on to hgazette.com.