I’ve written how I had gotten a ballpark figure before, using financial calculators and basing assumptions on averages and historical data. I still believe it’s better to have some goal for how much to save than to just go without a plan. However if you can get smarter with your target number, than go for it.
How Much Do You Need with Conventional Retirement Planning?
What makes Todd’s book a resource is how he doesn’t give a one size fits all solution. He takes you step by step on how you can build a nest egg that fits your particular needs and situation. To give you an idea of wealth of information he shares, I’ll highlight just a few questions tackled in the first section where he explains how conventional retirement planning works.
How much income do I need for retirement? While the traditional rule of the says that you should plan for around 75% of your current income, Todd shows that it’s more practical to look at your expenses and make a reasonable ballpark figure as to what you will need. He references studies where most categories see a significant decrease with the exception of health insurance.
How does inflation impact the amount of money I need for retirement? Todd gives some compelling reasons why you shouldn’t just assume the standard 3% rate and instead stress test your savings requirement.
How does life expectancy impact the amount of money I need to retire? While actuary tables are useful for insurance companies, Todd explains why they aren’t valid for you and your retirement.
How much will my company pension and social security pay during retirement? While those closer to retirement may want to factor in their pension and retirements, Todd goes into why you can’t treat them as secure solutions.
What I appreciate is that Todd pulls no punches with these questions and more. He shares the math and studies relevant to each question. You are encourage to run the numbers yourself and decide whether or not conventional retirement planning suits your needs.
From here, the second section covers creative retirement planning. Todd goes over how you can adjust and tweak your current lifestyle and assumptions based on scenario analysis. He gives some practical advice on how you can turn activities and hobbies that you enjoy into income streams that you can utilize when you retire. For couples approaching their retirement and are looking to shore up their finances, this section is for you.
The last section gives the cash flow model, which Todd used himself and allowed him to ‘retire’ (be financially independent) at 35. He crafted a three rule system handles inflation and life expectancy plus gives you diversified sources of income.
I can say that going through the questions he asked, I feel more prepared and knowledgeable. Instead of being focused on that ‘magic’ number, I have a doable plan that would work for us. If you two are looking for a retirement planning resource, I highly recommend Todd’s book. It is packed with information without getting too dry or long winded.
Autographed Book Giveaway!
I had the pleasure of chatting with Mr. Tresidder last month in St. Louis and I attended one of his sessions. Not only is he extremely knowledgeable about investing, he is also a genuinely concerned about helping others get their retirement plan squared away.
He was kind enough to offer a couple pf autographed copies of his book and I’m giving them away on both my sites – one for a Couple Money and one for My Financial Reviews. It’s simple to enter; I just want you to share your biggest retirement question by November 30, 2013. I’ll pick a winner December 1, 2013.
I’ve written before about taking a 401(k) match if your employer offers it and we’ve been blessed that my husband has such a plan and match at his job. It’s basically free money so he puts in enough to get the match.
However when some invest in their company’s 401(k), they may find that their options in what to invest in are limited. What can you do then? Should you skip out on the 401(k) or should you take what is offered?
Contribute to Get The Match
First off, if you get a match for the 401(k), contributing enough to get the match is smart move. If the options are very limited than just get the match and direct the rest of money into an IRA where you can have more low cost selections.
Keep Your Mutual Expenses Low
When exmaining the investments available in the 401(k), besides looking at the performance, you should check the fees involved. With actively managed mutual funds, the fees come out of your contribution, so you’re the one losing out.
In every single time period and data point tested, low-cost funds beat high-cost funds.
Over time, these fees lower your return, sometimes dramatically. Take for an example of similar investments based on a $50,000 contribution and how fees can quickly eat up your money:
That’s almost $12,000 more in your pocket!
Review Your Asset Allocation
Of course, your 401(k) is just one piece of the puzzle. Whether you decide to retire early or later in life, you want to make sure that all of your accounts have their assets allocated according your retirement goals.
The main idea behind proper asset allocation is maximizing your portfolio’s return while minimizing your risk. While maximizing returns seems clear, risk is subjective and differs person to person.
You want to make sure that you’re not duplicating investments. Instead see if you can keep your overall portfolio diversified.
Thoughts on 401(k)s
I’d like to hear from you about your retirement accounts. How many of you have 401(ks) that offer a match? How many of you take advantage of it? What do you invest in for your 401(k)?