Make your money work

Tips for building a better nest egg

By Gillian Rich
Globe Correspondent / March 6, 2011

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With winter almost over, its time to think ahead to spring cleaning: clearing out basements, uncluttering closets, and, with a little cooperation from the weather, sprucing up yards. It’s also a good time to take stock of 401(k) and other retirement plans, financial advisers say.

With fewer companies offering traditional pensions, saving aggressively and investing wisely are more important than ever for individuals, who are increasingly responsible for financing their own retirements. Each year, advisers say, people should review retirement accounts and ask, “Am I saving enough? Could I save more? Do I have the right mix of investments?’’

A good place to start, said Nan Sabel Kaftan, a financial planner at the Women’s Financial Network in Bedford, is analyzing how your retirement account performed over the past year.

“People remember two good months or two bad months,’’ she said, “but you need to look at the whole year to judge your investment’s performance.’’

Barry Wood, for example, sits down with his financial planner once a year to review the investment strategy for his 401(k). Wood, 47, is president of Kitchen Sales, a kitchen design company in West Bridgewater, that offers a 401(k) plan to its dozen employees.

“You have to hold someone accountable and ask them questions if the performance is not up to par,’’ he said. “Make sure it’s well invested.’’

While performance is important, perhaps the most effective way to expand retirement accounts is to save more, financial advisers say. And the sooner, the better.

For example, if you start saving $100 a week at 35 years old and earn an 8 percent annual return, you’ll accumulate $650,000 by retirement, according to financial planning estimates. Wait until 45, and you end up with just $250,000.

It’s also better to save small amounts on a regular basis throughout the year, rather than trying to make a big contribution at the end, financial specialists said. If your company offers a 401(k) plan, you can have retirement savings automatically deducted from your paycheck. If you have an IRA, arrange to have money periodically transferred from your bank account to your retirement account.

“Contributing $500 a month all year is less painful than realizing at the end of October you need to put in $6,000 at once,’’ said Kaf tan. “Also, the longer people postpone increasing contributions, the less likely they are going to do it.’’

People should also look for ways to increase the amount they set aside. The payroll tax cut enacted at the end of last year by Congress is a perfect opportunity. For most, that tax cut means a barely noticeable $10 to $20 extra per week.

But stashing away that $10 a week could mean an extra $35,000 by retirement. “Just consider the payroll cuts as a bonus,’’ Kaftan said, “and get that into a 401(k).’’

Another bonus available to many workers is a matching contribution from the employer. Before the recession, for example, Kitchen Sales provided a 10 percent match for its employees, adding $100 to every $1,000 that employees contributed to their 401(k)s. The recession forced the company to suspend the matching program, but Wood hopes to restart it soon.

Many companies provide a 50 percent match on contributions, up to 6 percent of an employee’s earnings, said Stuart Armstrong, a Boston-area financial planner. In other words, employees who save at least 6 percent of their salaries would get a match equal to 3 percent of earnings.

Make sure you contribute enough to get the maximum match from your company, financial advisers urge. If you don’t, you’re just giving away money.

How employees invest retirement savings depends on age, said Jason Lilly, director of portfolio management for Rockland Trust, a community bank in Osterville. A younger worker with 30 years until retirement may want to invest mostly in stocks, which can have pronounced ups and downs over the short-term, but a greater payout in the long run. As a person nears retirement, more money should be placed in bonds, which produce smaller, but steadier returns.

“In many cases, as you get older you want to tone down stock exposure. Usually doing this within five to seven years before retirement is a good rule of thumb,’’ Lilly said. “Don’t make drastic changes. Just gradually rely less on the growth component of stocks.’’

When Wood began working at Kitchen Sales in his early 20s, he was advised that even though retirement seemed a long way off, it would arrive quickly. Heeding this advice, Wood began investing each week.

Now, he encourages his staff, many of them in their 20s and 30s, to do the same.

“If you’re 30, you don’t think 59½ will be here any time soon, but it will,’’ he said. “We have a relatively young sales force. Those who are invested in the 401(k) are in for the long haul.’’