• Home
• About Myself
• Ask A Question
• Blog
• Disclaimer Statement
• Privacy Policy

Retirement Planning For Life

In today’s economic environment retirement planning is more important than ever. We are experiencing reduced equity returns, employer provided pensions are becoming extinct, our nation’s monetary policy erodes the value of our currency daily, and our government retirement programs are financially unsustainable, That does not mean that retirement is no longer possible, but it does mean that you must stay ever vigilant in order to reach your retirement goals.

I will end this blog with a list of what I think are the most important retirement ideas and concepts to remember for each age group.

In Your 20s…..

• Develop a long term retirement plan that has periodic goals (such as every 5 years) along the way, so you can monitor your progress. Update your plan as necessary.
• Your first financial goal should be to save at least three months of living expenses for emergencies like a job loss.
• If you start your retirement savings plan in earnest in your 20s, you have the best chance to reach your retirement goals. I know that when you are in their 20s, you have lots of expenses. And I know when just starting your career; your income is not very high. But you should start getting into the habit of saving money. Even saving just 1% to 2% of one’s monthly income will go a long way toward retirement. Saving $50 per month at an average annual return of 7% will be over $60,000 in 30 years; $100 per month will be over $120,000.
• Remember that saving money is more important than maximizing portfolio returns. You can control the former but not the latter.
• If your employer has a retirement plan that matches contributions, be sure to contribute enough to obtain the matching funds. This is free money that only a fool would pass up.
• When you pay off a big debt like a school or car loan, do not immediately increase your consumption, increase your savings.
• In your 20s, you do not need any more than 3 different asset classes for your investments (a large-cap fund, an international fund, and a bond fund is all you need). At this age you can have an 80% equity allocation.
• If possible, by the time you leave your 20s try to get your total retirement savings to equal your annual family income.

In your 30s…..

• Try to get your savings rate up to 15% of your income as soon as possible. Saving early and often is important to reaching retirement goals. After you leave your 30s, if you have not been saving regularly for retirement, the required savings rate assuming you do not want to work past age 70 starts to hit the “impossible zone” for most people (i.e., a 30% to 40% savings rate).
• Remember that saving money is more important than maximizing portfolio returns.
• Do not borrow from or cash out your retirement accounts for any reason.
• Get married to someone who views money the same way you do (i.e., they are a saver and not a spender)….and stay married.
• Only buy a house if you can do so without decreasing your retirement savings rate.
• When your retirement savings reaches $100,000, you should start investing in at least 5 different asset classes (e.g., large-cap, small-cap stocks, emerging market equities, cash, US bonds, foreign bonds, real estate, commodities, precious metals, etc.)
• If you are not sure of your risk tolerance for the equity markets, keep your equity allocation to 70% or less.
• Remember to review and re-balance your portfolio once per year.
• Try to get your retirement savings nest egg to equal about 3 times your annual income by the time you leave your 30s.

In Your 40s…..

• When you reach your 40s, you should think about engaging a “fee only” financial planner to help guide you through all your financial plans as well as your retirement plan.
• Start monitoring your portfolio allocations closer and rebalance when there are sharp market moves even if it is not time for your annual portfolio review (this is a risk reduction technique).
• Remember that saving money is more important than maximizing portfolio returns.
• By now you should have a good feel of your risk tolerance. If you do not, I would suggest you keep your equity allocation to 60% or less.
• Try to get your retirement savings nest egg to equal about 5 to 6 times your annual income by the time you leave your 40s.

In Your 50s…..

• If you have not started already, begin tracking your living costs and make adjustments to better estimate your living costs in retirement.
• Start getting more specific about your retirement date and living arrangements. Will you be downsizing your home in retirement? Will you be relocating?
• Start reviewing in detail your potential retirement income from your assets as well as any other income streams you may have.
• Continue adding to your retirement savings as much as possible.
• Remember that saving money is more important than maximizing portfolio returns.
• When I look back, I think the single biggest factor that helped my retirement assets was I avoided the big losses caused by the severe cyclical bear markets from 2000 to 2002 and from 2008 to 2009. I did this by maintaining a proper equity allocation that reduced my portfolio risk and I boldly re-balanced my assets during these tumultuous times. I always viewed large market drops as an opportunity. During cyclical bear markets you will only have the courage to re-balance into equities if your assets, before the market downdraft, properly reflect your risk tolerance. If, in your 50s, you still are not sure of your risk tolerance, keep your equity allocation at no more than 50%.
• Try to get your retirement savings nest egg to equal about 10 times your annual income by the time you leave your 50s. Most of this increase will now be coming from your portfolio returns rather than your annual savings. But keep saving as much as you can, especially if the equity markets hit a down draft. If you employ the dollar cost averaging concept during a market down draft you will really help your portfolio recover when the market turns up again. And remember the market will always recover, the only question is when.

In Your 60s…..

• Continue adding to your retirement savings as much as possible.
• Start evaluating asset withdrawal strategies. Get the assistance of a financial planner if necessary.
• Pay off all debts including your home mortgage before your retirement date.
• Make any large capital investments (e.g., a new roof or a new car) before you finish working.
• Try to get your retirement savings nest egg to equal about 15 times your annual income by the time you retire. Living on 70% to 75% of your final year’s income before retirement, along with any social security benefit you receive, should allow you to retire comfortably.

Some Final Thoughts…..

With the federal government, in today’s dollars, having over $100 trillion in unfunded liabilities for all the old-age entitlement programs, these programs are not going to pay benefits with the same purchasing power as they do today. With a current annual GDP of about $15 trillion, there is simply no way that this will be possible. I think all these programs will still exist in the future, but the benefits will be meager compared to what today’s senior citizens receive. It may not seem possible today; but I think in 10 years federal government benefits will be closer to what third-world countries provide their citizens today. If that does not motivate you to start saving as much as you can, probably nothing will.

Even if you are starting your retirement savings plan late, it is still much better than not starting at all. I have been around people my own age who have the attitude, “Well, I have no chance of ever saving enough to retire, so why bother saving at all. I am going to have to work until age 75 anyway.” This is not the right mindset to have. Every little bit helps. In addition, there may come a time where it will not be your choice whether you keep working. Whether due to health or job market reasons, you may be forced to stop working at age 60 or 65 just like many people have had to do in the current economic environment.

If you only started to save in earnest at age 50 and can only manage to accumulate $200,000 in retirement assets by age 65, this is much better than nothing. This $200,000 nest egg will provide about $8,000 to $10,000 per year of spending cash. This amount will add significantly to someone with only a $14,000 per year social security benefit.

This is my last post for the Blog Theme “Retirement Planning Simplified.” In a few weeks I will return to this site and start blogging about our trip south to the Bahamas on our sailboat. This blog theme will mostly chronicle our sailboat experiences and also touch on some financial areas such as living costs and staying on a budget in retirement. There will also be many pictures.

Hope everyone continues to visit.

Did you enjoy this post? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.