Saving for retirement

  • Posted by a hidden member.
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    Sep 26, 2010 5:26 PM GMT
    At 39, I'm at an age where I'm starting to take retirement planning very seriously. So I've been having conversations with others about it more and more. I like to see what others are doing, what's worked and what mistakes to avoid.

    I've been shocked and surprised how many people have done almost nothing to save for retirement. Even people in their 50s many times will admit they're not sure how they're going to retire and haven't saved much. I only started taking it seriously about four years ago and wish I'd started much earlier. I could have likely retired in luxury if I'd started my retirement saving and investing in my mid-20s.

    I'm blessed to have a good income and am now building my retirement savings very aggressively, but still wonder if it'll be just enough to feel comfortable.

    So, if you don't mind sharing...


    Given that the value of a dollar will be much less in 25 years than it is now, how much do you think you'll need for a comfortable retirement? How much do you plan/think you'll have? And at what age do you plan to retire?
  • mizu5

    Posts: 2599

    Sep 26, 2010 5:32 PM GMT
    Being 19 I am not thinking terribly about this, though I jsut had this discussion with my parents. They are in their late 50's. Both of them started retirement fund in their mid-20's they told me. They said it had to do with a certain amount of fear instilled in them, and both of their parents are holocaust survivors. My grandparents too, after escaping, began to save in their mid 20's. AND SO, after my diatribe, I say that by 25 it is expected of me that i will have a retirement fund started. But it's also good thinking, because even it's it's 50 dollars a week, or every two weeks or even a month, starting early enough, and slowly increasing the amount can be highly beneficial.
  • Muscmasmat

    Posts: 124

    Sep 26, 2010 6:08 PM GMT
    Global, the amount you will need when you retire really depends on the lifesyle you want when you retire (that is the income you will need). Also part of the equation is realisticly what amount of incomre you can spare to put into retirement. You should put in as much as you can spare. Right now you are able to generate income, but as you grow older, this opportunity becomes less and less, unless you own your own businesss.

    You can consult websites like fidelity.com which have online reitrement planners/modelers that you can use to project your needed income. They may even meet with you for free to discuss your options. Check your company resources also. They may have seminars on retirement planning.

    As Southbeach points out, your investment strategy will need to change as you approach retirement toward more fixed income instruments. But you may want to remain somewhat in stocks to hedge inflation.

    Our community colleges here have courses you can take on retirement planning and most of the investment firms also conduct these. You just have to realize they may be trying to sell you something. But consult a lot of different resources and eventually you will get a good picture of what you need.

    You may also get advice from parents or friends on a good financial planner that they use. Many of these charge fees, but, if you find a good one, based on recommendations of good performance, it might be worth the fee.



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    Sep 26, 2010 6:10 PM GMT
    SB, this is all standard advice, but I don't think the conventional wisdom is going to work for some people I've talked to.

    Moving into safe investments in their 40s will not cut it. Personally, I've been very heavily invested in aggressive funds, have always been comfortable in that segment, and will probably continue to weight my portfolio heavily in that segment into my 50s.

    Yes, it's volatile, but it's also the only way you're going to realize the kind of big returns that will help you play catch up if you started late.

    I also generally agree with the advice to stay away from single stocks, but if you do your homework, single stocks can be a good place to make significant gains. I've made 50% on RVBD just since April because it's a company I know (not as an insider though) and knew what the short term horizon looked like for the company.

    So for every rule, there's an exception to the rule. It depends on how much risk you're comfortable with.
  • HndsmKansan

    Posts: 16311

    Sep 26, 2010 6:18 PM GMT
    Well I'm a financial planner/ investment advisor and my job IS to work with others to plan prudently for retirement (and other) purposes.

    I see people of all ages who take it very seriously... and others who don't partially because they can't (because of other pressing obligations) or don't want to mess with it. I cannot offer any sort of advice on a site like this, but
    certainly a couple of points:

    1. Take advantage of an employer's pre-tax retirement plan if you can do so (especially if there is a match involved)

    2. Know and contribute to a ROTH IRA if possible.

    3. Contribute to a non qualified retirement plan so you an access it without penalty

    4. Even thought the rates are pathetic, you must have 6 months (plus) pay in a savings account for emergency purposes.

    5. If you invest money, do your homework. Know your expenses, know your risk.

    6. Review and nurture!!!
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    Sep 26, 2010 6:36 PM GMT
    HndsmKansan saidWell I'm a financial planner/ investment advisor and my job IS to work with others to plan prudently for retirement (and other) purposes.


    I have an IRA and a 401K. You wouldn't advise to cash them in and go with a "I'm going to die young" plan?
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    Sep 26, 2010 7:39 PM GMT
    heartrobb said
    HndsmKansan saidWell I'm a financial planner/ investment advisor and my job IS to work with others to plan prudently for retirement (and other) purposes.


    I have an IRA and a 401K. You wouldn't advise to cash them in and go with a "I'm going to die young" plan?

    I don't know. That might depend on what your doctor says.
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    Sep 26, 2010 8:35 PM GMT

    I volunteer as a financial literacy trainer with a local non profit. Last week we finally got around to revising some illustrations we use to show the benefits of compound interest to savers and investors. They needed updating to reflect the interest rates and investment gains that look likely going forward instead of the relatively high rates that worked five or more years ago.

    Even to someone with an extensive background in finance and an intuitive feel for these things, the results are shocking. In a low interest rate, low return, low inflation environment it's going to take people a LOT longer to save for anything like a viable retirement. Many middle aged people who are not lucky enough to be beneficiaries of defined benefit pension plans, and who either started saving relatively late in life or who suffered losses in the current economic crash are going to be particularly hard hit.

    The advice? Start saving early - i.e. in your twenties. Stay diversified and aware of fees. Take advantage of employer matching and/or tax deferred savings options. Stay aware of performance results. Invest in nothing you do not understand. Keep at least three to six months of earnings in liquid savings to hopefully ride out emergencies and/or periods of unemployment without having to raid retirement savings (and incur tax penalties). If you are a couple of decades or more from retirement think about adding mutual funds with foreign and/or emerging markets exposure to the mix. Finally, invest in training and positioning yourself in a field you love. We may have to re-think entirely the idea of retirement.
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    Sep 26, 2010 8:54 PM GMT
    flieslikeabeagle said
    They needed updating to reflect the interest rates and investment gains that look likely going forward instead of the relatively high rates that worked five or more years ago.

    Even to someone with an extensive background in finance and an intuitive feel for these things, the results are shocking. In a low interest rate, low return, low inflation environment it's going to take people a LOT longer to save for anything like a viable retirement.


    No doubt. Five years ago if you wanted to throw money into an ETF with a 20-30% annual return, you had plenty of options. Now, there are very few and none with sustained high returns over 3 to 5 years. It's not only depressing, but personally it skewed my expectations.

    I hope things return to that, but I really doubt it will happen.
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    Sep 26, 2010 11:09 PM GMT
    My inheritance has been cut in half by the falling home values!I think it is outrageous that banks are paying so little on savings accounts.Ben Bernanke must be an idiot.Think of all the elderly who prob have to go out and work @ McDonalds cause they are earning .90% on their savings.5% is the minimum of fairness in my book.
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    Sep 27, 2010 12:02 AM GMT
    I'm currently investing in lottery tickets. icon_lol.gif

    But seriously, I would like to save up enough money to buy some rental property so that I get a steady inflow of cash. And then maybe do some part time consulting for a little extra income. I don't think I can truly "retire" because I'm one of those people that likes to work and stay busy.
  • Posted by a hidden member.
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    Sep 27, 2010 2:26 AM GMT
    Who's giving out compound interest these days? I'd like to know.
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    Sep 27, 2010 8:33 PM GMT
    retiring is overrated.. keep on working till you drop.
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    Sep 27, 2010 9:24 PM GMT
    Am 47. I max out my 401K contribution every year (unmatched by employer) and am invested very aggressively right now - seeing modest returns. I also make full contribution to my Roth as well. Believe it or not I actually DO have 6 months salary sitting in the bank.

    We had salary cuts this past April which were just rescinded. I am comfortable living on what I had been getting so rather than spend the increased paycheck - I am pulling the extra that I get every week and putting it aside to invest.

    Saving is pretty boring and it does take discipline. I may "want" something right now - but sometimes I gotta let the urge pass until I can afford to get it...only to find that I didn't really want it anyway! icon_confused.gif
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    Sep 27, 2010 9:27 PM GMT
    beneful1 saidWho's giving out compound interest these days? I'd like to know.


    No one "gives" compound interest... the only person who can create compound interest is the one who gets the interest.. therefor if you get interest on your money, reinvest that to get interest on your interest... thats compound interest... anyone can do it...
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    Sep 27, 2010 9:28 PM GMT
    ZJ_JB said
    beneful1 saidWho's giving out compound interest these days? I'd like to know.


    No one "gives" compound interest... the only person who can create compound interest is the one who gets the interest.. therefor if you get interest on your money, reinvest that to get interest on your interest... thats compound interest... anyone can do it...


    and if you'd like help, id be more than happy to help you out icon_smile.gif Im a financial advisor and licensed in all 50 states and DC.
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    Sep 27, 2010 9:30 PM GMT
    WickedRyan saidMy inheritance has been cut in half by the falling home values!I think it is outrageous that banks are paying so little on savings accounts.Ben Bernanke must be an idiot.Think of all the elderly who prob have to go out and work @ McDonalds cause they are earning .90% on their savings.5% is the minimum of fairness in my book.


    A savings account is no where to invest... not even when rates are decent for a savings account.. cause they are still worthless then... ladder insured bonds, UITs, floating rate bond funds, etc... much better income investments than savings or cds
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    Sep 27, 2010 9:32 PM GMT
    ZJ_JB said
    WickedRyan saidMy inheritance has been cut in half by the falling home values!I think it is outrageous that banks are paying so little on savings accounts.Ben Bernanke must be an idiot.Think of all the elderly who prob have to go out and work @ McDonalds cause they are earning .90% on their savings.5% is the minimum of fairness in my book.


    A savings account is no where to invest, emergency money sure.. but its not an investment ... not even when rates are decent for a savings account.. cause they are still worthless then... ladder insured bonds, UITs, floating rate bond funds, etc... much better income investments than savings or cds
  • allatonce

    Posts: 904

    Sep 27, 2010 10:23 PM GMT
    I think things may have to change for retirement a bit too. A lot of people are going to have to think of retiring later and working longer, right now because of the recession but in a more long-term picture because we are just living longer.
    Retiring at 60 is all fine if you are going to live to 75-80, but if you plan on living until your 90's or 100 that is a LONG time to be living of savings. If you take care of your body now, you can be productive for longer and I personally don't have a problem with working (at least in some fashion) until later in life than average.

    As for me, I am 23, and am not starting a retirement fund yet (still in school) but probably will when I get a job hopefully some time next year, but I am a fairly financially conservative person and know this won't be the average. Another thing I would consider is retiring abroad (at least for a few years and then maybe move back). I was in Panama this summer and understand why you might want to retire there, they have great infrastructure, give incentives to retirees to stay in their country, great health system, amazing climates and geography, and things are A LOT cheaper. You may not have to save as much if you plan on retiring somewhere where costs are a lot less.

    I think my generation, defined by a lot less "steady job with benefits" type of lifestyles and a lot more contract work moving from job to job lifestyles may have to be more creative in retirement scenarios. Couple that with (hopefully) longer life expectancies and the standard retirement model may have to be adjusted.
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    Sep 27, 2010 10:39 PM GMT
    I took the following approach.

    First step, looked at my annual pay check and excluded tax, investments, and pension / employment deductions. The remainder is my current annual expenses, which I tweaked for post retirement changes.

    Second step, used a spreadsheet to extrapolate savings and pay at the end of each year. Boosted savings by average return rate after subtracting inflation. At retirement age, zeroed my pay, and started subtracting annual expenses. Added in any expected income from government pensions. Adjusted for less income tax due to lower income. Drop dead when savings hit zero.

    The days of over 10% returns are gone unless your financial advisor is Bernie Madoff. My returns for the past 15 years have averaged 4%. Excluding inflation, leaves roughly 2% real return.

    To get to this point, I killed off my mortgage as quickly as possible as the interest is not deductable in Canada. Outside of RRSP, it is your best 'investment' (= guaranteed tax-free rate of return). I parked my income and dividend funds in the government tax shelters. Outside of those shelters, equity should not trigger any tax until I cash out at retirement and a lower tax bracket. The latter consisted of diversified index funds for their lower expense ratios.

    Don't trust the commonly held rules of thumb like targetting 70% of income, needing $2MM, or using 4% of savings per year. They can be extremely misleading and depressing.
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    Sep 27, 2010 10:59 PM GMT
    I am very lucky. I get to draw my armed forces pension when I leave the Service in 2 years time. Thanks to some pretty intensive saving over the last few years, I will also be debt-free and mortgage-free.
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    Sep 28, 2010 1:24 AM GMT
    Global_Citizen saidAt 39, I'm at an age where I'm starting to take retirement planning very seriously. So I've been having conversations with others about it more and more. I like to see what others are doing, what's worked and what mistakes to avoid.

    I've been shocked and surprised how many people have done almost nothing to save for retirement. Even people in their 50s many times will admit they're not sure how they're going to retire and haven't saved much. I only started taking it seriously about four years ago and wish I'd started much earlier. I could have likely retired in luxury if I'd started my retirement saving and investing in my mid-20s.

    I'm blessed to have a good income and am now building my retirement savings very aggressively, but still wonder if it'll be just enough to feel comfortable.

    So, if you don't mind sharing...


    Given that the value of a dollar will be much less in 25 years than it is now, how much do you think you'll need for a comfortable retirement? How much do you plan/think you'll have? And at what age do you plan to retire?


    Another instrument not discussed in this thread, and pretty much good advise all together and what most investors are putting aside money is in Life Insurance. Some policies allow you to grow equity for cash for retirement and draw upon a certain age, tax free. I started this a couple of years ago, so is another instrument in your portfolio that you should consider for retirement. Do not count on your employer's etc. Always, do your own in view that company get bought and sold, etc. You always want to be in control of your finances and future. Look for an insurance company with a solid background financially and that did not invest frivolously in the toxic real estate business.
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    Sep 28, 2010 1:55 AM GMT
    I've been investing for years and 3 yrs from being able to retire. I'm not sure I'll be financially able or wanting but I could. Retirement plan, 401K, Roth, IRA, Stocks, Mutual Funds, Timeshare (very important ) all a part of the overall portfolio. I feel I'll do OK when the time comes.

    I have to disagree with uombrocha, I've always been told that with life insure, do term and invest the difference, your return will be better. Thats what I did until I decided I no longer had a need for term insurance, then I dropped it.
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    Sep 28, 2010 1:56 AM GMT
    uombrocha, I hope you're not suggesting whole life insurance, which is one of the worst financial products ever invented. Well, worst for the consumer, but probably best for the insurance company.

    An insurance policy is no place to look for building an investment. Try a 401K, Roth IRA, CDs... anything other than a whole life insurance policy. A whole life insurance policy as an investment vehicle is a ripoff sold to people who are completely ignorant about investments and financial planning.