How to Save for Retirement
Seek the advice of professional financial advisors to help you with this task, realizing you can’t afford to make mistakes, since you’ll need to make every dollar grow., Budget to save as much money as possible and avoid unnecessary spending., If...
Step-by-Step Guide
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Step 1: Seek the advice of professional financial advisors to help you with this task
Saving and investing for a reliable retirement income for the rest of your life — no matter how long you live — is an ambitious undertaking that takes knowledge, time and skill.
So, it’s likely that you may need or want this kind of help.
That said, good advice does not have to cost you anything other than time.
Plenty of excellent books on retirement savings are freely available for you to read courtesy of your local public library.
Try to be discerning though, and check the reviews available online such as from Amazon.com.
While some books are worth their weight in gold, others are drivels worth far less than zero.
Take free online financial classes such as from Coursera.org and MIT Open CourseWare.
Your local college may also offer financial classes you can audit for free.
Don't hand over your money for a financial advisor to manage.
At best, you will be charged a 1% asset under management (AUM) fee that would cost you about one-third of what you could have after 40 years, assuming 7 percent return per year. (i.e. if you start with $100,000, instead of having $1.5 million after 40 years, you would end up with only $1.0 million, paying half a million to your financial adviser alone, while you assumed all the risk associated with investing.) At worst, most or all your money may be stolen by an unscrupulous financial advisor.If you still feel you need a personal financial advisor, go with a fee-only advisor (NOT "fee-based"!!) with no adverse action on record and who will contain costs by choosing low cost broad market based index funds with low turnover.
Even with a very small portfolio, don't agree to more than 1% AUM fee.
And if you have a large portfolio, you should be able to negotiate fees down to
0.5% or less. , A good, aggressive saving goal should be at least 50% of your after-tax earnings.
Cut down on luxuries.
Don't spend "seed" money but invest/germinate the seeds, hold/plant and water--nor do you "eat nest eggs" that need to be allowed to "hatch," grow and multiply into a productive "flock" of investments.
Live mostly on absolute essentials, (food, shelter, transportation),...
Search around for the best prices.
Buy things that will appreciate in value (e.g.: a home, collectible gold, land, rentals ,...) and avoid things that depreciate in value (e.g.: a new, or expensive car, big TVs).
For example, read books or watch basic television channels instead of paying for cable television, cook your own food instead of dining in restaurants, quit smoking.
Learn to live simply on modest means, and always look for free or economical alternatives.Always think of opportunity cost: the dollar you spend now could have turned into many dollars by the time you retire.
Smart spending will provide the foundation for saving money for retirement. , If your employer offers 100% match up to a maximum that will be matched, find out what the maximum is, and contribute at least the amount required to get the maximum company match. 401(k) accounts are actually mutual funds that can charge high fees (e.g. around 1% per year), and therefore will not do as well as investing in stocks and bonds directly.
But, with employer matching your funds, you can double your investment immediately, and then hopefully your fund investment will increase in value. 401(k) accounts also offer tax advantages; inquire and read about them.
You may be required to contribute at least a minimum amount to qualify for employer matching (to save about 10-30% of your income).
Remember that 401k's are taxed upon distribution; so try to estimate what the tax rate will be when you take your money out.
Estimate your tax before using withdrawn money; you need to hold back enough for paying those taxes. , A portion should be delegated to stocks, another portion to bonds, perhaps another portion to commodities like gold and silver, and another portion to cash in the form of savings account, certificates of deposit (CDs), etc.
If you are not near retirement, an example allocation is 60% stocks, 20% bonds, 10% gold and silver, 10% cash.
The reason for diversification is to reduce risks and maximize returns.
By not having all assets in a single asset, you are less affected
-- if the value of one components of your portfolio crashes. , monthly, quarterly, or annually) to maintain the proportions.
For the example above, if stocks crash and gold and silver soar, the weight of stocks will be less than 60% and gold and silver more than 10%.
You will then sell gold and silver to buy stocks until 60% stocks (unless you are near retirement) and 10% gold and silver is restored.
Rebalancing helps you to maintain control of your emotions and practice buying low and selling high, rather than the reverse.
This will help you lower the risks of losing money.
To minimize transaction costs, you should rebalance by predominantly adding new money to under-weighted assets during your wealth accumulation stage, and selling over-weighted assets during your wealth distribution stage. , Buy stocks both domestic and foreign, from every sector, and of any market cap.
Buy both government and corporate bonds.
As for gold and silver, buy physical metals to take possession.
Don't trust others to store your valuables for you that you bought at high costs.
Don't buy gold and silver more than 10-15% over spot, or else they would have to appreciate a lot for you not to lose money when you need to cash out.
Gold and silver coins over 100 years old may be considered better than bullion because they have numismatic value in addition to their intrinsic metal values. , You can be certain that some people like to try to pick pockets that have discoverable assets.
Attorneys of anyone who may sue you will use compulsory discovery processes and you can be required reveal your assets.
Avoid seeing your life savings go to others accounts.
Also, purchasing "umbrella" liability insurance for more protection may be a good plan.
Your insurance agent will tell you your options and how much your should get. , Reduce the portion in your portfolio delegated to risks such as stocks and increase the portion in safe investments including municipal bonds and cash.
Chances are, the market will decline or even may crash when you need to be taking out your money.
What can go wrong includes not having time or opportunity to recoup losses from dire events in the market, and you might have to postpone retirement
-- if you did not reduce your risks to the minimum. -
Step 2: realizing you can’t afford to make mistakes
-
Step 3: since you’ll need to make every dollar grow.
-
Step 4: Budget to save as much money as possible and avoid unnecessary spending.
-
Step 5: If you live in the United States and it is available to you
-
Step 6: enroll in a 401(k) account.
-
Step 7: Develop an investment plan known as a portfolio for your saved money.
-
Step 8: Rebalance the categories in your portfolio periodically (e.g.
-
Step 9: Diversify within each asset class of your portfolio by assigning a weight to each sub-class.
-
Step 10: Consider changing your assets into a form such as life annuity where you could not lose it
-
Step 11: if you are sued whether you have too much to lose or just enough to tempt a swindler.
-
Step 12: Reduce risk when nearing retirement and stay out of high risks from that time on.
Detailed Guide
Saving and investing for a reliable retirement income for the rest of your life — no matter how long you live — is an ambitious undertaking that takes knowledge, time and skill.
So, it’s likely that you may need or want this kind of help.
That said, good advice does not have to cost you anything other than time.
Plenty of excellent books on retirement savings are freely available for you to read courtesy of your local public library.
Try to be discerning though, and check the reviews available online such as from Amazon.com.
While some books are worth their weight in gold, others are drivels worth far less than zero.
Take free online financial classes such as from Coursera.org and MIT Open CourseWare.
Your local college may also offer financial classes you can audit for free.
Don't hand over your money for a financial advisor to manage.
At best, you will be charged a 1% asset under management (AUM) fee that would cost you about one-third of what you could have after 40 years, assuming 7 percent return per year. (i.e. if you start with $100,000, instead of having $1.5 million after 40 years, you would end up with only $1.0 million, paying half a million to your financial adviser alone, while you assumed all the risk associated with investing.) At worst, most or all your money may be stolen by an unscrupulous financial advisor.If you still feel you need a personal financial advisor, go with a fee-only advisor (NOT "fee-based"!!) with no adverse action on record and who will contain costs by choosing low cost broad market based index funds with low turnover.
Even with a very small portfolio, don't agree to more than 1% AUM fee.
And if you have a large portfolio, you should be able to negotiate fees down to
0.5% or less. , A good, aggressive saving goal should be at least 50% of your after-tax earnings.
Cut down on luxuries.
Don't spend "seed" money but invest/germinate the seeds, hold/plant and water--nor do you "eat nest eggs" that need to be allowed to "hatch," grow and multiply into a productive "flock" of investments.
Live mostly on absolute essentials, (food, shelter, transportation),...
Search around for the best prices.
Buy things that will appreciate in value (e.g.: a home, collectible gold, land, rentals ,...) and avoid things that depreciate in value (e.g.: a new, or expensive car, big TVs).
For example, read books or watch basic television channels instead of paying for cable television, cook your own food instead of dining in restaurants, quit smoking.
Learn to live simply on modest means, and always look for free or economical alternatives.Always think of opportunity cost: the dollar you spend now could have turned into many dollars by the time you retire.
Smart spending will provide the foundation for saving money for retirement. , If your employer offers 100% match up to a maximum that will be matched, find out what the maximum is, and contribute at least the amount required to get the maximum company match. 401(k) accounts are actually mutual funds that can charge high fees (e.g. around 1% per year), and therefore will not do as well as investing in stocks and bonds directly.
But, with employer matching your funds, you can double your investment immediately, and then hopefully your fund investment will increase in value. 401(k) accounts also offer tax advantages; inquire and read about them.
You may be required to contribute at least a minimum amount to qualify for employer matching (to save about 10-30% of your income).
Remember that 401k's are taxed upon distribution; so try to estimate what the tax rate will be when you take your money out.
Estimate your tax before using withdrawn money; you need to hold back enough for paying those taxes. , A portion should be delegated to stocks, another portion to bonds, perhaps another portion to commodities like gold and silver, and another portion to cash in the form of savings account, certificates of deposit (CDs), etc.
If you are not near retirement, an example allocation is 60% stocks, 20% bonds, 10% gold and silver, 10% cash.
The reason for diversification is to reduce risks and maximize returns.
By not having all assets in a single asset, you are less affected
-- if the value of one components of your portfolio crashes. , monthly, quarterly, or annually) to maintain the proportions.
For the example above, if stocks crash and gold and silver soar, the weight of stocks will be less than 60% and gold and silver more than 10%.
You will then sell gold and silver to buy stocks until 60% stocks (unless you are near retirement) and 10% gold and silver is restored.
Rebalancing helps you to maintain control of your emotions and practice buying low and selling high, rather than the reverse.
This will help you lower the risks of losing money.
To minimize transaction costs, you should rebalance by predominantly adding new money to under-weighted assets during your wealth accumulation stage, and selling over-weighted assets during your wealth distribution stage. , Buy stocks both domestic and foreign, from every sector, and of any market cap.
Buy both government and corporate bonds.
As for gold and silver, buy physical metals to take possession.
Don't trust others to store your valuables for you that you bought at high costs.
Don't buy gold and silver more than 10-15% over spot, or else they would have to appreciate a lot for you not to lose money when you need to cash out.
Gold and silver coins over 100 years old may be considered better than bullion because they have numismatic value in addition to their intrinsic metal values. , You can be certain that some people like to try to pick pockets that have discoverable assets.
Attorneys of anyone who may sue you will use compulsory discovery processes and you can be required reveal your assets.
Avoid seeing your life savings go to others accounts.
Also, purchasing "umbrella" liability insurance for more protection may be a good plan.
Your insurance agent will tell you your options and how much your should get. , Reduce the portion in your portfolio delegated to risks such as stocks and increase the portion in safe investments including municipal bonds and cash.
Chances are, the market will decline or even may crash when you need to be taking out your money.
What can go wrong includes not having time or opportunity to recoup losses from dire events in the market, and you might have to postpone retirement
-- if you did not reduce your risks to the minimum.
About the Author
Jonathan Thompson
Jonathan Thompson is an experienced writer with over 1 years of expertise in lifestyle and practical guides. Passionate about sharing practical knowledge, Jonathan creates easy-to-follow guides that help readers achieve their goals.
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