Practically everyone knows that in order to make it to retirement with an adequate amount of funds to support your current lifestyle you need to save as much money as possible and the market needs to give back a decent return on your investments. We realized that this is hardly a secret and the reason we put together this blog is that there are actually many other things that you can and should be doing to make sure that when retirement finally does arrive you’re in great financial shape to enjoy it. With that in mind we put together a list of the best tips to make sure that you can retire in comfort. Enjoy.
According to Wade Pfau, who is a professor of retirement income at The American College, 16.6% is the magic retirement number. Mr. Pfau went all the way back to the beginning of the 19th century while doing his research and he found that if a person puts aside 16.6% of their income into diversified stocks and bonds and did so consistently over 30 years that they would be able to retire and keep their current standard of living.
Rick Meigs, who is president of 401khelpcenter.com, he recommended that when it comes to saving for retirement a person do more than the maximum as far as 401(k) savings are concerned. The simple fact is that the IRS has rules that prevent high-income workers from benefiting from their plans. He recommends adding a Roth IRA which will allow you to grow your after-tax money tax-free. If that isn’t possible because your salary is above the income limits he recommends a nondeductible IRA which can be converted to a Roth IRA in the future.
Professor Pfau also recommends buying cheap funds as he believes that it’s easier and akin to saving more. For example, if you pay a 1% management fee per year on your funds your safe savings rate will jump to over 22%. You can also purchase index funds and ETF’s at a cost of .10% or less which will help add to your savings.
Research into behavioral finance has suggested that, if you take a few moments to consider your future self, you will be more likely to save more money for retirement. This is a very interesting finding from NYU researcher Hal Hirschfield and, if you’re keen on testing the theory, you can surf to the Android app store and purchase an app called Aging Booth for $.99. (It might be a good idea to have a stiff drink before you use the app.)
Finally, as you get closer to retirement most financial experts recommend that you start dialing down your risk. For example, approximately 5 years before your retirement date you should get a hold on how much you’re going to need to pay your essential expenses. Once you have that number you should shift the equivalent of one year of those expenses to either cash or short-term bonds. This will protect you if stocks have been to plunge as your retirement date approaches, will keep you from selling your investments in a panic and will give you a little bit of extra time to let markets recover.
These tips were put together by our staff but research by some of the best financial experts out there right now. Investing and saving for retirement is absolutely vital and, if you’re keen on having enough to support yourself and your current lifestyle, we recommend that you follow each and every one of them. Best of luck with your retirement plans and of course be sure to come back and join us soon as will be presenting much more financial information throughout the month of April. Until next time, take care.
