Daniel Solin’s series of The Smartest X Book You’ll Ever Read have turned me off for their title alone, and thus, to this point, I’ve not read them. The title set off a big “questionable expense planning” warning light inside my mind and, with lots of other options to select from, I just kept passing on books in this series.
As is often the case, though, a long-time reader emailed me and strongly encouraged me to give this specific book a shot, mostly simply because he felt it addressed retirement savings from new angles that he hadn’t considered before.
I do appreciate reading personal finance books, especially ones that add new suggestions to familiar topics, so I headed out to my nearby library and picked this one up. I do need to say that it did include some ideas and angles on retirement living cost savings that were certainly intriguing and provided food for thought.
One | Rethink Retirement Investing
Right off the bat, Solin makes the essential point that if you do not protect your portfolio against inflation, you’re going to run out of cash a lot sooner than you would like. Inflation is really a force that constantly pushes against your retirement cost savings, producing every dollar you save these days worth much less when you retire. This is a specific issue for conservative investors who would like to maintain their money reduced risk and “safe” – they won’t lose money, but they’ll frequently generate at a rate reduce than inflation, which means the real worth of their money is actually decreasing over time. The best solution, then, is to balance the two – maintain a wholesome portion of one’s money in stable things (like money or CDs or savings accounts or treasury notes), but set some of it into other things with much more growth potential that may keep your overall portfolio ahead of inflation.
Two | Stocks Made Simple
Person investors shouldn’t invest in person stocks (unless it’s just for fun) because the risk is just as well excellent. You do not want to bet your retirement on one company lest it turn out to be the next Enron. Rather, you wish to mix it up: invest in broad-based index funds, some of them with reduce danger and some of them with greater danger. So, for example, your general portfolio might be 1/3 in cash or treasury notes, 1/3 in a complete stock index, and 1/3 in an international complete stock index. The key is to purchase index funds for your investments – they spread out your danger whilst also keeping the fees really low. (I do this myself – I’ve my money with Vanguard.) Obviously, as you move closer to retirement, you’re going to want much less of your cash at risk, so more than time you’ll migrate more and more to money and treasury notes and less and less in stocks. 1 easy way to do that is to just buy “target retirement living funds” which automatically handle that transition for you (again, making certain that these “target retirement funds” are created up of reduced price index funds).
Three | Bonds Made Simple
Bonds are an excellent way to get solid returns in your portfolio with relatively low risk. Solin recommends that most investors ought to have a minimum of some of their retirement money in a broadly diversified, low-cost bond index fund. It’s essential to keep in mind, although, that bonds aren’t riskless. They have much less risk than stocks, but they are not entirely free of risk. Solin also suggests that investors worried about inflation should not purchase Tips (Treasury Inflation-Protected Securities) because they’re very volatile and they earn very poorly in times of low inflation (like right now, for example).
Four | Cash Made Simple
You ought to never keep cash in a bank that doesn’t have FDIC insurance, and you ought to make certain that your money savings by no means exceeds the FDIC insurance cap (currently $250,000). Solin encourages searching around for banks if you are just searching for a location to sock away your money savings (I suggest utilizing BankRate).
Five | Annuities Made Simple
Solin is a big fan of immediate annuities – annuities in which you give a cash sum to an investment house and receive payments for that rest of your life from them. He argues that they significantly decrease the danger of outliving your cash, even if the returns are not stellar. Another option is a charitable annuity, where you give a lump sum to some charity and they issue you payments for that rest of one’s life – this ensures that your annuity lump sum winds up in the hands of a charity you care about rather of a company. If you do get an annuity, although, Solin recommends a fixed rate annuity, not a variable rate one – they carry a lot danger. Your annuity ought to have a fixed rate, period.
Six | Mining Your Money
Do not trust historical returns when you’re trying to figure out how a lot you are able to safely withdraw from your retirement every year. Instead, you should merely focus on withdrawing as little as you are able to get away with each year. Solin suggests aiming to withdraw in between 2% and 4% of the complete each year – I think that’s an excellent target (he provides some more math-intensive guidelines too). He also provides several exceptions to that “2-4%” rule that involve marketplace timing, a subject that I don’t agree with him on (I don’t believe marketplace timing is generally a good move).
Seven | Simple Steps to Stretch Your Money
Whenever you begin getting withdrawals, withdraw out of your taxed accounts first (like any ordinary savings or expense accounts), then deferred retirement savings accounts (like a 401(k)), then Roth IRAs last. Why? The lengthier cash stays inside a tax-deferred account, the lengthier it has to grow in worth without Uncle Sam feeding off of it. For those who have a 401(k), Solin recommends rolling it more than into an IRA if you can because this gives you more control and also the capability to utilize lower-cost investments. He also thinks converting your IRA to some Roth IRA (and everybody with an IRA can do this in 2010) is a great move for nearly everyone, but especially higher earnings earners.
Eight | Social Security and Pensions: Critical Choices
If there’s any feasible method to delay getting Social Security, do it. If you are able to wait until you are older, you’ll get higher payments for life. It can also adversely affect the high quality of existence of a spouse that survives you. Also, do not bank everything on a pension simply because, as we’ve seen recently, businesses occasionally are not 100% dependable in paying out the pensions they’ve promised. If you do have a pension, avoid taking the lump sum option (for those who have it) and take monthly payments rather.
Nine | Is Sixty-Five the New Fifty?
People are living lengthier lives and staying wholesome a lot longer. What this means, to put it merely, is that if you retire at the traditional retirement age, you’re going to have to cover many much more many years than the generations prior to you had to cover for themselves. The answer, obviously, is really a simple one: work longer. Turn your early “retirement” many years into a continuation of one’s career or the crest of the second one. Do not rely on age discrimination laws to assist you, either – everybody is responsible for maintaining their abilities up and building their personal paths.
Ten | Financial Lifelines for Desperate Times
What if you are running away from money? A reverse mortgage (meaning you give your home’s deed to someone else and in exchange you receive normal obligations) is a choice, but it ought to be your absolute last one. Why? They’re expensive – they’re loaded down with tons of charges and you will get nothing close to what your house is actually worth out of it. Instead, seek other options. The AARP is a spectacular resource for that elderly, as are nearby churches and civic organizations.
One Comment
This was a really great post.Thank you for taking the time to provide such a great and informative article. It has given me lots of thoughts. In reality I would like to write something like this also – taking time and real effort to make a good article… but what can I say… I procrastinate a lot and never seem to get anything done