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Have You Saved Less Than $50,000 for Retirement?

It's never too late to build your nest egg

Of course, all of this is a moot point if you're not making smart decisions with your investment portfolio before and after you retire. Here are a few investment principles you can apply to your 401(k):

• Diversify. Don't put all of your money into one class of investments. If you spread the money around, when one investment is down, there's at least a chance another one will be doing well.

• Take a little risk. Is all your money in the "safe" option? If the return is less than the inflation rate, you're losing money.

• Consider automatic options. Life-cycle or target-date retirement funds are "set-it-and-forget-it" programs that automatically select a diverse set of investments based on the appropriate level of risk for someone your age. They also automatically rebalance each year to ensure that market gains and losses have not left you with too much exposure to any particular class of investment.

• Beware of fees. Management fees are subtracted from your account. Even a one percentage point difference in fees can cost you tens of thousands of dollars over time. Your employer — or the free AARP 401(k) Fee Calculator (registration required) — can tell you how high your funds' fees are.

• Pay attention. Be sure to read your account statements and if you're concerned that an investment is not doing well, consider making a change. Your 401(k) provider — as well as other financial news and investment providers — should have tools that can help you choose the fund that's right for you.

• Plan for a long life. The Treasury Department has proposed new rules that would make it easier to use a portion of your 401(k) savings to buy annuities, which provide a guaranteed monthly income for life — regardless of what the market does.

If you're in your 50s and you're just starting to get serious about saving for retirement, you might be feeling a bit like Don Quixote reaching for that unreachable star. But by working a little longer, postponing your Social Security claim (thereby supersizing your monthly benefit for the rest of your life) and supplementing Social Security with another stream of guaranteed income (like an annuity), your heart, at least, may lie peaceful and calm.

Jean Setzfand is vice president of financial security at AARP.

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