The steps to taking control of your retirement begin with your first job after graduating from school:  take a job that offers a 401k.  At some point, also create an IRA.  For the knowledgeable investor, that IRA should be with a discount brokerage, such as Charles Schwab.

From the beginning, deduct at least 6% of your paycheck in the 401k; that will assure that you will receive the maximum matching contribution from your employer.

As you pay off each loan that you borrowed – student loan, car loan, mortgage, or whatever – increase your contribution to your 401k or your IRA by that much.  Your goal is to ultimately reach the maximum permitted, 15%.

That sounds like a lot of money when you are young and struggling to make ends meet.  But doing so not only lays the groundwork for controlling your retirement, but also teaches you how to budget properly, and to be more frugal in your expenses, discerning between necessary and unnecessary expenses – both valuable skills at any age, whether working or retired.  

The money placed into a 401k must be kept in the 401k for a specific period of time – usually, about two years.  After that period, that money is “vested” – yours no matter what happens.  Every year or two, move your vested money out of the 401k, and into your IRA account (not into a regular after-tax account – the IRS will hit you with a hefty fine for that!).

A knowledgeable investor can do much better than the mutual funds typically offered in a 401k, by learning which stocks to buy and which stocks (that he already owns) to sell.  

As has been noted frequently in this column, buying and selling stocks profitably is not an easy task!  The only way to learn is through trial-and-error.  Even for the best investor, sometimes you will buy stocks that turn out to be losers.  The goals, of course, are (1) make more money on your successful stocks than you lose on your bad choices, and (2) make a higher-percentage return on your investments than is possible with mutual funds.

Given the current recession, the best tactic is to buy the stock of good, solid companies that will do well when the economy begins growing again.  With the market in decline, immediate profits are unlikely.  But stock prices are much cheaper.  Building the foundation of a good portfolio by buying stocks at cheap prices is always a good long-term strategy.

A recession always seems scary, but get used to them.  You will experience several periods when stock prices are in decline before you retire, and afterwards.  Learn how best to deal with them.  

Obviously, that implies that you will also live through a number of good times, when the economy is growing and stock prices keep going up.  Learn to make the most of the down times:  put yourself in the best position to do well during periods when the economy has turned around and is growing.  The durations of periods of economic growth are typically much longer, with a greater degree of change, than the durations of downturns, recessions, and decline.  

And then along comes Retirement

Much too soon, retirement comes knocking on the door.  If you enjoyed the work you were doing, if you liked your career, retirement comes much too soon.

If you have been keeping your 401k contributions up at 15%, and successfully building your IRA’s stock portfolio, then your portfolio should be worth close to a million dollars, and maybe more – a good foundation for taking control of your Retirement.  

With a million dollars, you can “live on the interest”; i.e., you can live comfortably on the increases in the value of your stocks and the dividends they pay, and not touch the principle – even during the declines of market downturns.  

No matter how long you live, no matter how old you are, you will never run out of money.  

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