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A while back, there was a poll on HT that asked what amount of income members believed they would need to save for retirement. As I recall, the majority of the responses came in in the $250-500K range, although there were a good number of responses at both ends of the spectrum. I saw a similar poll today on an investment discussion board, where the responses were coming in at between $2 million and $4 million. Quite understandably, I was a little freaked out, then calmed down when I thought about the fact that anybody that hangs out on an investment site is probably a top 1% earner with a house in Malibu. Still kind of bugged me, though.

In the discussion following both of these polls, some reference was made to a well-regarded benchmark standard that says you should plan in retirement to spend no more than 4% of your nestegg each year. I did the math and realized that to eek by on a mere $1,666 per month, one would have to accumulate a starting balance of $500,000. Egads. So much for retiring early.

I am interested in knowing more about about this formula and about other similar formulas for figuring how much you need for retirement--especially what assumptions they use. Is there anyone who might be familiar with these things that could answer a few questions?

1. Does it assume a single person with no dependents, a single-earner married couple, or something else?

2. Is the amount of retirement funds needed (and to which the 4% rule is e applied) supposed to include the value of a person's home?

3. Does it assume that the person wants to leave something to his heirs, or does it assume a total spend-down? If it assumes a total spend-down, does it also assume the eventual liquidation of the home?

4. Does the 4% withdrawal rate contemplate pre-tax or post-tax funds?

5. How many years of drawing down does the formula presume?

Thanks in advance!
 

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I'm not a retirement expert, but DH & I were talking about retirement just yesterday. MSN posted a link to their retirement planner that addresses a lot of issues you brought up, like how long your nest egg will last.
 

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amelia said:
...well-regarded benchmark standard that says you should plan in retirement to spend no more than 4% of your nestegg each year.
the 4% comes from historical analysis of stock market returns, bond returns, and inflation over extended periods of time. i think it assumes the money is invested in stocks and bonds in a diversified portfolio. at 4% withdrawal (pre-tax), your money should last 20-30 years, perhaps longer. it also depends on where you invest the money, the amount in bonds vs stocks, and of course, what the stock market does over that period of time.

if you withdraw at a higher rate, a sudden slump in the stock market, or increase in inflation will leave you with too little income or principle in the later years.

since it's computed based on what the money can be expected to earn reliably over time in a diversified portfolio, it's irrelevant to the number of dependents, marriage status, value of house, etc. it's also separate from the anything you might get from social security, or corp pensions, or your house.

a couple of points first:

1) longevity: chances are, you'll live a lot longer than you think you will. and the pain of outliving your money, and being broke at age 80, would not be very fun.

altho the 'average' lifespan is 72 years or so, that 'average' means that 50% of the population will live longer than that. furthermore, that number includes the people that died at age 42. if you look at the 'average' lifespan of people that are currently age 65 (ie, retirement age) it's probably something like 12 years, or 77 years of age. if you planned for your money to last 12 years, you'd still have a 50% chance of outliving your money!

i can't remember the exact numbers & ages, but if you want only a 5% chance of outliving your money, you'd need to assume you'd live to age 85 or 88 or so. if you want only a 1% chance of outliving your money, you'd have to assume you'd live to about age 93-95 or so! (i calculated this from mortality tables a few years ago. unfortunately, i haven't seen such info in places, so i had to calculate it myself. the results surprised me.)

so, assuming your retire at 65, you'd have to prepare for 20 years worth of income (to age 85) if you want only a 5% chance of outliving your money. and you'd have to prepare for almost 30 years (to age 95) if you want only a 1% chance of outliving your money. i would guess that most people grossly underestimate this. it could be a very rude awaking.

2) long term stock market returns: today, most people assume that recent history is 'normal', and the future will be exactly the same. they look at the 1982-2000 bull market, when the stock market went up about 15%/year, and extrapolate that into the future. "4% withdrawal! bah humbug! i can withdraw 10%/year and have plenty left over!!"

unfortunately, there are 'long wave cycles' in the stock market, where extended periods of large increases are followed by extended periods of little or no stock market gains.

for example, the stock market (dow jones) first hit 1000 in 1966. between 1966 and 1982, a period of high inflation, the stock market bounced between 800 and 1000. the low in 1982 was about 750 or so. in inflation adjusted terms, the stock market went down more than 50% over that 18 year period. bonds were also performing very poorly over that time period due to the high inflation. so, assume you'd retired in 1966, and started withdrawing 10% of your nest-egg. how long would it have lasted?

that wasn't the first time it had happened either:
1907-1921, stock market bounced up and down, and essentially went nowhere. average yearly gain over that time period from a buy and hold strategy was about 1% a year.
1921-1929, stock market averaged about 15%/year.
1929-1946 (yr?), very low average returns, perhaps even -1% or so.
1946-1966, about 15% /yr returns
1966-1982, see above
1982-2000, about 15%/yr returns
2000-????, how we doing so far? nasdaq still well down from its highs. dow jones hitting news highs in non-inflation adjusted numbers. but adjusted for CPI inflation? doe you believe the CPI is accurate?

i personally believe that in 2000, we entered another long term period where the stock market will bounce up and down, but go nowhere for a decade or more.

and it's not just the usa. japan's stock market hit 40,000 in 1989, after 20 years or more of very impressive growth. then it crashed. it bounced between about 12,000-20,000 for a decade. about 2002, it hit a new low of about 7,000 something, before going up again. real estate in japan has also gone down for 14 years or more during this time too.

so, the 4% rate seems so low because there can be major market corrections, and extended periods where the market doesn't return very much. yet you still need to withdraw money to live. and the money withdrawn isn't available to earn anything when the market turns back up. you never know when that will occur, or how long it will last, or how long you will live, so you need to be very conservative.
 

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amelia said:
... Is there anyone who might be familiar with these things that could answer a few questions?
I have attended a few courses, so I will attempt to answer.



... 1. Does it assume a single person with no dependents, a single-earner married couple, or something else?
It is flexible, and assumes YOU, with whatever your living arrangement is.



... 2. Is the amount of retirement funds needed (and to which the 4% rule is e applied) supposed to include the value of a person's home?
No, unless your house is a MFR.



... 3. Does it assume that the person wants to leave something to his heirs, or does it assume a total spend-down? If it assumes a total spend-down, does it also assume the eventual liquidation of the home?
Some formulas do assume a spend-down, while others do not.

Balancing a 'guaranteed' CD's rate of return against inflation, along with a 30 year spend-down, would seem to be the average.



... 4. Does the 4% withdrawal rate contemplate pre-tax or post-tax funds?
Ideally tax-free.
 

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Well, I don't know if I'm an expert, but I am experienced at investing - I've been doing it for about 20 years - I'm 40.

Looking back through a search of posts of yours, I've discovered that you are 50. So at least I know what kind of time horizen you are looking at.

First of all, investing as early as possible is important. Let's use the following for an example - you are age 15 (I know, I know, it's a stretch, but just pretend!!!) ;) :D if at age 15 you would save $1.00 every single day. After one year, you would have $325.00. If you continued putting $1.00 every single day into a hiding spot, when you would turn 70, you would have had around $20,000.00. Of course, you aren't going to just hide your money at home, you would invest it. Let's say at the end of each month, you took your $30.00 and put it into a safe investment like a government bond where you earned 5% / year. Now instead of only having $20,000.00, you would have around $101,250.00! Not a bad deal on only saving $1.00 for each day for 55 years. But say you invested in some stocks that on average earned 9% / year - you would then have around $480,000.00. This should point out to you how important time is for investing - the money you saved, making more money, which then makes more money - your money grows faster with compounding! (The above example was taken out of the book "You Have MORE Than You THINK" by David & Tom Gardner.)

Don't let those figures of $2 million - $4 million scare you. As you have figured out, those are the baby boomers and yuppies who "need" that much. (Tee time at the country club and yearly cruises take lots of cash.) Being a frugal homesteader and not expecting a cushy retirement will go along way towards not actually needing so much.

However, time is important - if you have already started, good for you. If not, you need to start right away.

How much you need to save is going to depend entirely on YOU! Single, married, whatever, it's all going to depend on what you/ and your partner are expecting retirement to be.

The value of your home should not be included in your retirement nest egg unless you plan on living on the street! If you sell your home - you will still have to live somewhere chances are somewhere that is going to cost you money (unless your kids or a relative decide to take you in for nothing!) I suppose you could plan on doing a reverse mortgage once you get so old, but again, the amount of cash you get each month is going to depend on the appraisal of your house and whatever equity you have in it. But reverse mortgages are really to make the mortgage company lots of money - they aren't out to "help" you - no matter what they say.

Wanting to leave your heirs some cash? Well, if that is the case and you want to guarantee you leave them some cash, before you get too old and end up in a nursing home (yes, it could happen and a nursing home will quickly eat up whatever nest egg you have VERY QUICKLY!) gift them money. I'm not saying you have to lose gift it to them and watch them spend it. If you trust your heirs, turn your investments into cash, and let them invest it under their name with the understanding, that the money is yours - it's just under their name. (WARNING: With the understanding that it is still your money, you will have absolutely no recourse, if they decide to take your money and spend it themselves! Like I said, you have to really TRUST the person and know that they aren't going to shaft you.) Gifting them cash guarantees that money is in their name. Your name is nowhere on the investment so if you end up in a nursing home, they can't get the money. Once you die, that money does not have to go through probate to be taxed.

How much you draw down your account depends on certain variables - some of which are unknown and you have to make your best guess. Of course, the first one is how long will you live? That is the big one. If you know you are only going to live for 10 years after you retire, then you can do the math. But to be on the safe side so you don't outlive your money, plan on living until around age 90 - 95.

How much are you going to need is the next question. Do you plan on living as frugally as possible or are you planning on going on cruises or vacations to other countries every year? Again, you are going to have to guess on how much you need.

Your health will be a big factor as well. If you have taken care of yourself all these years, and have been in good health, hope that it continues. But if you get into poor health, medicine and doctor visits might take alot of cash to keep you breathing. Again, this is mostly a guess. You might live to be 99 and be in good health and die one night in your sleep from a heart attack. Of course, you could also have a heart attack or stroke at age 64 and be in poor health or possibly die. (I know, I know, not stuff you want to hear, but the reality is like that!)

My advice to you is to take whatever nest egg you have and get it invested in some good quality stocks and bonds. You still have another 10, 15, ? years until retirement. You have to think somewhat long term, not watch that stocks were up today, down tomorrow, and down the next day. The Vanguard Group is a good place to invest money - they have the lowest fees anywhere. You should open up a ROTH IRA. $3000.00 will get you started. Going to brokers or investment places might be a good thing if you know nothing about investing. However, they aren't helping you out of the kindness of their hearts! They expect to profit off of you with fees.

Save as much as you can. Take your spare change and dollar bills and invest it instead of using it to buy things at the store. Cut back on spending where you can, and invest what you normally would have spent.

Of course, all the above about investing all depends on you being out of debt now! There isn't much use in investing your money to get 5% if you are paying 10% on some loan or 15% on a credit card. Being entirely out of debt before you retire is of the utmost importance!!!!!!

And of course, WHEN you retire is another biggie. With you being age 50, you can pretty much count on getting help from social security. Us younger folks will either have to plan on reduced benefits or none at all! But you don't HAVE to retire at age 65. If you enjoy what you are doing and can still give your employer a day's work, you can continue working. If you don't enjoy what you are doing, you can still retire, but then get a job that you enjoy. It might not pay what your old job did, but getting a job what you enjoy won't actually seem like a job, plus it will still bring in some cash.

I hope I have answered some of your questions. If you have others, feel free to PM me. I am by no means an investment expert, but will gladly give you whatever advice I have learned along the way.
 

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Great post Michael! I would add that if you save at least 10-15% of your annual salary you should be able to live somewhat comfortable when you retire. If your employer has a savings plan at least match what they do. (It's free money). If your interested in individual investing check out websites called buyandhold, and sharebuilder.com. They have a plans that let you invest what you can afford until you able to buy a certain stock. Say Dell is selling for $100 a share, but you can only afford to save $25 a month. In 4 months you would have 1 share of Dell stock given it hasn't changed. Best advice is to avoid debt. You'll be surprised have much you can save without any credit card payments.

GR
 

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I'll add to georgiarebel's post. Yes, if you happen to work for a company that has a 401(k), get on board - especially if the company matches part of your contribution!!!!!! It's free money you are giving up! Not only is your contribution taken out of your paycheck before taxes - so you actually pay less taxes then you would if you kept the money, but most companies match part of your contribution. My wife works for a company that matches every dollar she invests with a dollar of their own - up to 6% of her paycheck. My company matches every dollar I put in with 25 cents - NO LIMIT!!!!! Your money will grow tax deferred as you don't pay any taxes on it, until it is withdrawn. Now usually there is a vesting period where the companies money isn't truly yours until you have worked there for a certain period. With my wife, she had to work there for 5 years before her companies contributions were actually hers to keep. With my employer, each year I work there, I get to keep 20% of the money they've contributed. 1 year 20%, 2 years 40% until at 5 years everything they have contributed is mine. And for goodness sakes, if you get a pay raise, increase your contribution to what your raise was - you won't miss the money!!!!

Sharebuilder or buyandhold are great places to invest in stocks if you only have small amounts to invest. However, quite a few companies have direct stock purchase plans where with as little as $250.00, you buy their stock direct from the company. Disney, Exxon/Mobil, Aflac, AT&T are examples of companies that offer direct stock purchase plans or dividend reinvestment plans. (Read the fees for investing in the prospectus. Some have initial fees of maybe $10.00 to start investing, some charge for each purchase plus a per share fee while others have no fees until you sell.) Have your dividends from the company automaticallly reinvested. Your money truly does work for you then! Ironically, the companies with direct plans are NOT allowed to advertise it! (Investment brokers want you to come to them so they can collect their fee for something you can actually do yourself!) To find out what companies offer direct stock purchase plans, just search it on the internet. Or if you are thinking of a particular company, type in the company's name with direct stock purchase plan after the name. Reading through the information will quickly let you know if they offer a direct stock plan. (Of course understand that investing in stock is not a guarantee. Stocks can truly reward you with great gains, the same is true if the stock tanks - you can quickly lose money!)

You need to diversify your investments! While stocks might gain 20% in one year, they can just as easily go down. Greater reward with the risk of greater loss. Of course, you can easily put your money in an ultra safe money market account giving you a gain of 3%, or more / year. However, inflation can quickly eat your gains and actually put you in a loss if inflation gets out of control. Not much use in investing money in a money market if you only have a gain of 3% while inflation has gone up 5%. Your dollar doesn't buy as much as it did 10 years ago. Diversification can help spread out your losses. If you only invest in stocks, things are great if stocks always end up with a gain - but some years they do go down. Stocks might be down, but bonds will probably be up. The bonds gain will help cut the loss of the stock. And of course, don't just put all of your money in one stock. (Yes, you could purchase the next Microsoft and have gains of incredible numbers. Likewise, you might purchase the next Enron and see your value go down to nearly nothing!!!

Mutual funds from Vanguard are another alternative. The fund pools your money and other investor's money to buy stock. The fund might actually own 100 different companys stock. Some stocks will lose, most will make gains, and some will skyrocket - the "rocketing" stock takes the bite out of the losing stocks. (Of course, AGAIN, some years stocks will have a bad year or so and will down in value.)

There is no get rich quick schemes - and if offered a "to good to be true get in on the ground floor deal" chances are it really is to good to be true!! Buy some investment magazines or get some investment books from the library to learn how to invest.
 

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not an expert here by any means, but DH and I have done a lot of homework on this. For maybe 18 years, we have kept track of all our expenses, so I also speak from some hard facts.

We are frugal, and avid savers. We garden, raise goats, heat our home with wood, we bicycle, recycle, reuse, we do not buy new stuff, we like to conserve all things. We tried to retire in 1999, but found we misjudged some things. Actually, I am still retired, but DH is still working.

These are my opinions only. It is foolish to think you can retire on $250, 000. Do the math, if you spend $30,000 a year, that $250,000 would last roughly 8 years. Just divide the 250k by what you will need in retirement to get the number of years that would last.

A book that we found fundamental to our retirement planning is titled "Your Money Or Your Life". Just google the title, it was a best seller for many years in the 1990's. Unfortuantely the main advice is no longer relevant, invest in 30 year treasury bonds, and the author is dead, but the book is still excellent in getting you to think about money.

DH is self employed so we had almost no retirement plan through a job. I did have a 401k for 5 years. That's all, we had to do it on our own.

Some facts:

Our yearly expenses:
2006- $32,985.44
2005- $34,131.81
2004- $36,636.86
2003- $32,093.94

So we have a pretty good idea of the level of income we need in retirement, which is a HUGH fact to know.

The amount of income needed, in our case, does not include the value of our home/property. The income is from cash/Ira's/annunities/stock/bonds. It does not include the value of our property.

Your questions have been well answered in the other posts.

Again, the book, "Your Money or Your Life" was a life changing book for us. I can not recommend it enough.
 

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Check out:
http://www.early-retirement.org/forums/
There is lot information here, although many of the posters seem to be high end earners.

http://firecalc.com/
This site has a retirement calculator that uses historical stock market returns which are used to calculate whether you have enough to retire and how long it will last.

http://www.retireearlylifestyle.com/
This site contains info about early retirement.

Although the above sites are for early retirement, they do offer insights and information for building your investments, as well as ways to live below your means.
 

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Lots of good advice in this thread.

An opinion, though: A lot of the retirement bally-hoo you read, is based upon unrealistic returns.

The old saying not in The Sermon on the Mount (but maybe it should be), is Blessed are the pessimists, for they shall not be disappointed. If one saves hard, invests wisely, and assumes returns on the lower end of the scale, you'll do fine...you'll rarely be disappointed and quite often you'll be pleasantly surprised....
 

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Jolly said:
Lots of good advice in this thread.

An opinion, though: A lot of the retirement bally-hoo you read, is based upon unrealistic returns.

The old saying not in The Sermon on the Mount (but maybe it should be), is Blessed are the pessimists, for they shall not be disappointed. If one saves hard, invests wisely, and assumes returns on the lower end of the scale, you'll do fine...you'll rarely be disappointed and quite often you'll be pleasantly surprised....
That is my Dad's route in retirement. While at the time it seemed like a raw deal, his early retirement buyout was a blessing as he could roll his money into a self-directed IRA account while those who did not take the package (or were not offered the package) now have to deal with the PBGC (government dept that deals with pensions of bankrupt companies etc., the safety net so to speak and I use the term loosely) for their retirement money. He never figured earning more than 4% and did not figure my Mom's social security money as money available to meet monthly expenses. Pay off your house and get rid of debt. To me, these are the lynchpins you need. In IL, a qualifying senior can defer his/her property taxes until the house is sold (death or nursing home). Of course interest ticks, no such thing as a free lunch but this does allow seniors to keep their houses. And IMHO, you owe your kids nothing when you die. No one should be planning on inheritance money and no one should spend money they 'think' they'll have in the future.
 

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In my neck of the woods real estate investments are the way to go. And I am doing that as much as possible.
 

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We have collected Multi-Family-Residences for a few years and they have done us well.

In California, Scotland, Connecticut and Washington state.

Triplexes, quads, five-plexes.

In each case; we were able to purchase with no money down [we have always had to pay closing costs]; the properties were usually far cheaper than single-family dwellings in the same neighborhood; and the rental income covers all expenses plus a bit.

The tax benefits are wonderful as they provide great tax sheltering of our other incomes.

And of course they have provided a home for my family, as we were stationed in each area.

Both sets of my grandparents had rentals and did well coming out of the depression.

My parents have rentals and do well with them.

And when it comes retirement time, they do continue to provide: the income, the tax sheltering, and housing.

If I did not have any MFRs, I do not think that I would have been able to retire at 42, as I did.
 

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I too am figuring on dying w/o any money. Gift to your kids when you are alive. Older established people don't really "need" more things but the young do as they are starting businesses and their houses and need everything. We need everything now like a tractor, trailer, and more farming eq. This is gathered slowly and normally used but it does still take mony. When we are older will will have this stuff and won't need to buy it again so our expenses will go down.

As we get older is is possible for other expenses to rise like medicines, but many conditions are preventable or kept in check w/ good diet and exercise. I knew several diabetics that are 70+ lbs overweight and eat sugar all the time and never get off the couch. Their helth is crap. That is preventable. Good health is key. keeps the nursing home debate at bay a little longer if you stay able to care for yourself in your own home as long as possible. Seniors hate moving from their home and will suffer much stress/helth issues for it.

Dying w/ a nice nest egg will only allow the irs to take half. If you did invest early it is easily shown that you can have a nice nestegg when you die(over the million $ or so mark). Don't get me started on the death tax right now. :flame:

Total estate value is different from cash flow and should not be confused. you can be "worth" a lot but not have much income comming in do to lower dividends/rates. some of the calculators IMHO show worth but not real income. A house is worth but give no income unless there is a reverse morgage and that seems like robbery to me. Do we get the interest we pay in back too???? :cool:

Living with modest expectations is going to serve retirement the best. That is very hard for some. Those people might have to work longer. Get hobbys that will pay you back. Hard to do but not impossible.

There is no majic formula and we don't know what the world will be like in 10-50yrs. be flexable, plan for the worst and hope for the best. Odds are not gaurentees but it helps to have them in your favor. :)
 

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okiemom said:
I too am figuring on dying w/o any money. Gift to your kids when you are alive. Older established people don't really "need" more things but the young do as they are starting businesses and their houses and need everything. We need everything now like a tractor, trailer, and more farming eq. This is gathered slowly and normally used but it does still take mony. When we are older will will have this stuff and won't need to buy it again so our expenses will go down.

As we get older is is possible for other expenses to rise like medicines, but many conditions are preventable or kept in check w/ good diet and exercise. I knew several diabetics that are 70+ lbs overweight and eat sugar all the time and never get off the couch. Their helth is crap. That is preventable. Good health is key. keeps the nursing home debate at bay a little longer if you stay able to care for yourself in your own home as long as possible. Seniors hate moving from their home and will suffer much stress/helth issues for it.

Dying w/ a nice nest egg will only allow the irs to take half. If you did invest early it is easily shown that you can have a nice nestegg when you die(over the million $ or so mark). Don't get me started on the death tax right now. :flame:

Total estate value is different from cash flow and should not be confused. you can be "worth" a lot but not have much income comming in do to lower dividends/rates. some of the calculators IMHO show worth but not real income. A house is worth but give no income unless there is a reverse morgage and that seems like robbery to me. Do we get the interest we pay in back too???? :cool:

Living with modest expectations is going to serve retirement the best. That is very hard for some. Those people might have to work longer. Get hobbys that will pay you back. Hard to do but not impossible.

There is no majic formula and we don't know what the world will be like in 10-50yrs. be flexable, plan for the worst and hope for the best. Odds are not gaurentees but it helps to have them in your favor. :)
Hey Okiemom .... we are practically neighbors. I am in Terlton. :)
 

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Let me just add my mom's favorite saying about saving:

"Pay yourself first."

If you do that, you will have quite a bit of money over time. She paid herself in dimes and quarters and dollar bills, and when she died at 76, we found out she had a personal bank account with $180,000 in it that she had never invested in so much as a CD. Just a nice, safe savings account. If she had a little, she just squirreled it away there. And look how it grew.
 

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Michael W. Smith said:
I'll add to georgiarebel's post. Yes, if you happen to work for a company that has a 401(k), get on board - especially if the company matches part of your contribution!!!!!! .........
Agree
Step 1 contribute to your 401k enough to max out employers match
Step 2 Max out Roth IRA
Step 3 back to the 401k up to statutory limit

In each case as your budget allows

Michael W. Smith said:
Sharebuilder or buyandhold are great places to invest in stocks if you only have small amounts to invest. However, quite a few companies have direct stock purchase plans where with as little as $250.00, you buy their stock direct from the company. Disney, Exxon/Mobil, Aflac, AT&T are examples of companies that offer direct stock purchase plans or dividend reinvestment plans. (Read the fees for investing in the prospectus. Some have initial fees of maybe $10.00 to start investing, some charge for each purchase plus a per share fee while others have no fees until you sell.) Have your dividends from the company automaticallly reinvested.........
I disagree somewhat. Picking individual stock is a suckers game. All data points to market under performance. Use index funds to match the markets return.


Michael W. Smith said:
Mutual funds from Vanguard are another alternative. The fund pools your money and other investor's money to buy stock. The fund might actually own 100 different companys stock. Some stocks will lose, most will make gains, and some will skyrocket - the "rocketing" stock takes the bite out of the losing stocks. (Of course, AGAIN, some years stocks will have a bad year or so and will down in value.)
More likely the fund will own thousands. I like Vanguard. My money is with them. I use Index funds and diversify across Stocks (large and small cap, foreign and domestic) bonds, and Real Estate investment trusts.

Michael W. Smith said:
There is no get rich quick schemes - and if offered a "to good to be true get in on the ground floor deal" chances are it really is to good to be true!! Buy some investment magazines or get some investment books from the library to learn how to invest.
Cannot agree more with this statement
 

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A few months ago there was a show on cable (CNBC, I think) about making yourself into a millionaire. They had experts from a variety of investment areas all talking about ways to get rich. What they all finally agreed upon was: pay off credit card debt, set up your mortgage to be paid bi-weekly, maximize your 401k plan, invest in something you know (either in stocks or mutual funds), and invest in real estate (either own your own or investment properties). I was happy that I was doing all of that except for the mortgage payment adjustment and we will be doing that shortly -- I understand that many mortgage companies offer that as a free option but you do have to authorize automatic payments from your bank account to get it.

Ken in Glassboro, NJ :)
 

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morrowsmowers said:
A few months ago there was a show on cable (CNBC, I think) about making yourself into a millionaire. They had experts from a variety of investment areas all talking about ways to get rich. What they all finally agreed upon was: pay off credit card debt, set up your mortgage to be paid bi-weekly, maximize your 401k plan, invest in something you know (either in stocks or mutual funds), and invest in real estate (either own your own or investment properties). I was happy that I was doing all of that except for the mortgage payment adjustment and we will be doing that shortly -- I understand that many mortgage companies offer that as a free option but you do have to authorize automatic payments from your bank account to get it. Ken in Glassboro, NJ :)
These are great ideas, and there have been many others in previous quotes.
Before anyone takes the retirement plunge, make sure you have a full understanding of the following; 1. What your REAL living costs are today, AND, 2. What those living costs will be over the next xx years.

Ten years from now with an average 3% inflation means that a car costing $20,000 today will cost $26,000. Also, a real killer is healthcare inflation which is currently running around 7.3%. That means that a Dr visit costing $110 today will be $190 in ten years. What does that mean in insurance premiums? Well, health insurance costing $650 a month now will run around $1125/month in ten years.

Whether someone can retire or not depends a lot on their age at retirement, whether they are eligibile for Social Security, and is their home paid for, AND what are your arrangements for health insurance?

I have tried to teach both of my children that the most important money they will ever save is that saved in their 20's. It has the most years for the interest and dividends to compound and grow.

Retirement saving is not difficult, UNLESS, you wait until you are 40 or older to start. Also, a million dollars isn't what it used to be. Someone mentioned the 4% rule earlier which is a good rule of thumb assuming the money is invested wisely and diversified. But 4% of a million dollars is $40,000 per year before taxes and before health insurance premiums. Has your homeowners insurance gone up lately? If that $40k is combined with a nice pension and SS check then okay, you'll probably be allright.

Just make sure you have all your ducks in a row, and a clear understanding of what your living costs will be for the forseeable future.

This is a topic that has no cookie cutter answer. Everyone's circumstances are different. Many financial planners can offer up a decent program, but they must know the fundamentals of each persons situation first.

1. How much do you have? $250,000 ? $500,000 ? 1 mil ?
2. Where is it invested? funds, stocks, bonds? which ones?
3. Are you SS elegible? yes ? no ?
4. What do you owe? home? credit cards? cars? boats? yachts? summer home? tractors? racehorses? etc.....
5. How old are you? four key ages - 55, 59.5, 62, and 65
6. What does it cost you to live on an annualized basis?
Can you afford to live on 4% of question #1? Will that amount pay for #6 ?
Will that amount pay #6 times 1.35? (3.5% inflation for ten years)
Once I know those answers, I (and others) can formulate a workable recomendation.

Last point and I'll shutup. No matter what anyone recomends, there are an infinite number of variables and assumptions concerning what will happen in the future that no one knows except the Father himself. I could make the best plan possible, and a world war could kill it.

I hope someone finds this helpful, as it is intended to only provoke thought on the subject. Everyones retirement requires a customized plan. We're trying to customize ours now, and trust me, it's a little scary.


G'nite all, and God bless

Dianne
 
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