Retirement 101: The who and the what
Table of Contents
- Before we begin
- The who and the what
- What is retirement, anyway?
- Estimating your retirement number
- We need to talk... about investing
- Asset allocation and risk tolerance
- Setting up your portfolio
- Making it work
- COMING SOON - Keep on keeping on
- COMING SOON - What if something goes wrong?
- COMING SOON - The non-monetary side of retirement
- COMING SOON - OK, I've retired. Now what?
What this series isn’t
At my old day job, we would have twice yearly presentations by our 401(k) administrator that would leave the whole staff confused and worried about the future. The presentation consisted of the same thing, every time: A brief overview of what the stock market had been doing in the short term, a bit of hedging about the possible future movements of the market (“it’s looking like things could get real, bad, real soon… or maybe two years from now. Or actually, things could be about to really take off…”), and a few random asides about political issues that could generously be called “tangential” to the idea of investing. There was never any talk about savings rates, minimizing fees, or even how to figure out how much money we should aiming to have in order to retire at all.
“It’s looking like things could get real, bad, real soon… or maybe two years from now. Or actually, things could be about to really take off…”
“An object at rest tends to stay at rest, unless acted upon by an outside force.”
Don’t let inertia be your downfall. My goal with this series is to be that outside force for you. To get you moving. To help you build momentum so that you can continue effectively, on your own. I’ll give you the broad outlines and some concrete steps that you can take to get moving. And once you start, I promise, you’ll get to a point where it all starts to make sense. And you’ll wish you started sooner!
Who is this series for?
At the end of each of those 401(k) presentations at my old employer, the twenty- and thirty-something employees would often be commiserating about how they hated wasting their time on a meeting that didn’t apply to them… Retirement planning is for people who are getting close to retirement, right? After all, how could they be expected to save anything at all in their 401(k)s when they were already living paycheck to paycheck? (Somehow, the ones who said this the loudest were the same people who went out to lunch every day, always wore the latest fashions, had the latest phone….) Meanwhile, most of the forty- and fifty-somethings would just walk out of the meeting room with a grim look on their faces, wishing they had started earlier.
Retirement planning is not for those who are about to retire! Anyone who is earning income should be planning for retirement. In fact, it’s more beneficial the younger you are! Because of the time value of money and the magic of compound interest, the earlier you start saving for retirement, the easier it will be to reach an adequate amount of savings. And it’s exponential! Let’s say you plan on retiring at 65 years old, and you start saving at 35. You manage to put away $500 per month into a broad market index fund. By the time you retire at 65, you will have accrued $566,765. That’s… maybe just barely enough to get by in retirement. If, on the other hand, you had started that same savings at 25 instead of 35, you’d be retiring with $1,197,810. That’s more than double, and will provide for a much more reasonable retirement income. That’s 33% more time saving, but provides 100% greater results. Start as soon as possible!
They say the best time to plant a tree is 20 years ago. The second best is right now. We can’t go back in time, but we can stop waiting for the perfect answer. So, get started today. Even you just put a little bit each month into your retirement account, it could make a huge difference in the long run. You don’t have to have a solid retirement plan in place to start saving and investing in retirement funds. It’s better to be putting away a bit less than is ideal now, than it is to do nothing at all until you’ve got it all figured out later.
This series is designed to explain a bit of everything involved in retirement planning, from the ground up. You may start reading a section and think “I already know this!”. Great! But not everybody does. Be patient when things feel repetitive. The most important bits bear repeating. I encourage you to go ahead read through the sections about things that you already know. You may still learn a thing or two, or see something from a new perspective.
If you aren’t yet saving for retirement, start right now. If your job provides a 401(k), get them to start putting a bit of each paycheck in there… even if it’s just $50/month. If you don’t have access to a 401(k), open up an IRA or Roth IRA at any of the major online providers. Most all of them provide free retirement accounts, good investment choices, and are easy to use. We’ll talk more later about IRA vs Roth IRA vs 401(k), but for now if you have any questions, feel free to send me a message and I can walk you through it. (And if you already have a retirement account, take this opportunity to increase your monthly contribution, even if it’s only by $20 more per month. Every little bit matters!
This is not optional. Take action right now. Otherwise none of the other stuff we’re going to talk about matters. If you don’t take this opportunity to take add to your retirement savings, you probably won’t do anything with any of the other information we’re going to cover. I’ll know you all mean business when by this time tomorrow I see the comments below filled with people saying “I did it. I just opened an account” or “I just increased my monthly contribution.”
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