Why is Retirement Planning Important?
Simple, easy, quick answer here – If you ever plan on quitting work, then retirement planning is important to you. Whether a person wants to admit it or not, we live in a physical world and we all need money even after we retire.
Many retirement planning specialists have complicated this topic. I am here to give you some common sense retirement planning solutions. There is no reason to drive yourself crazy over this issue.
Common Sense Retirement Planning
Now let’s talk about some common sense retirement planning facts.
- Should you have long-term retirement savings? – YES
- Should you have short-term savings for emergencies? – YES
These two concepts make up the foundation of all retirement planning strategies. Your short-term savings should ideally be about 6 months of work income. Your long-term savings should be as much as you can save after your short-term savings goal is met. Why? Because if you plan on living after you stop working, you’ll need some cash.
Basic Retirement Planning Questions
How much money do I need for retirement?
Common sense says you need as much as you can accumulate, without sacrificing too much in your life along the way. Can you ever have too much retirement money? The more retirement money you save, the more freedom and enjoyment you should get out of retirement.
How much money do I need to save yearly?
Save as much as you can without excessive daily living sacrifices.
What should I invest my money in to get a good return?
There’s not a simple answer to this question. Oh, I know what most “in-the-box retirement advisors” would tell you, but I think you need to keep your eyes and ears open. I discuss this in more detail further down the page.
When should I start saving for my retirement?
Now – the earlier you save, the more money you should have for retirement – as long as you don’t lose it.
Should I Use A Retirement Planning Calculator or Software?
There is a reason you will not find me promoting a retirement calculator or software. I do not believe that equations can tell the future. When you plug numbers into a retirement calculator, you get a result that assumes nothing changes in your life, in the economy, or with your health. Life is dynamic and changes all the time. For this reason it is best to consult with an experienced retirement planner. An experienced retirement planner keeps his hand on the pulse of change and can help guide you on the best ways to maximize your money.
My smart science minded friend Mr. X, refers to retirement planning software and calculators as an experiment in the “pseudoscience of fantasy math”. If you like to play around with numbers, you can find all kinds of free retirement planning calculators on the internet to fantasize with. But will those numbers be reality for you when you retire? Probably not, but you could surprise yourself and have more.
Common 401K Retirement Planning Questions
My company will provide a match to my 401K, how much money should I put in?
If someone is giving you FREE MONEY, TAKE IT!! Put in the minimal amount that they will match. Free money is free money. If someone is willing to give it to you, take as much as they will give you.
Should I put in more in my 401k then my company match? Should I put in the maximum amount of money I can put in?
The majority of “think inside the box” financial planners and tax people would probably tell you to load up your 401K. However, I am a “think outside of the box” guy so my answer to this question depends on the tax-bracket environment.
If we have a low tax-bracket environment like we have now, I say just put in to the company match maximum. No more.
However in a high tax-bracket environment, you could consider putting up to the maximum amount the plan allows.
IRA’s, 403(b)’s, and 401K’s
401K’s, 403(b)’s and IRA’s have one thing in common. They are all retirement vehicles funded with qualified money.
Qualified money is money you have never paid tax on. Your favorite Uncle (Uncle Sam) likes to tax all money at least one time. So when you withdraw and spend from these plans, be prepared to pay tax on the whole amount of money withdrawn. You’ll even pay more if you are less than 591/2 years old. If you withdraw and spend prior to age 591/2, your favorite Uncle wants 10% more on top of your tax (see a qualified tax advisor for more details).
I am a fan of saving for retirement, but am not big on the idea of having the bulk of my money in qualified plans. Other retirement planners may disagree. Do not confuse what I am saying. I am not telling or implying that you should not save for retirement because I think you should. However, after seeing all the numbers, I think it is wise to also save outside of retirement plans.
Retirement Planning Asset Allocation
“Money is like manure. If you spread it around it does a lot of good. But if you pile it up in one place, it stinks like hell”
– Clint Murchinson, Jr.
Asset allocation is an investment mix based on your tolerance to risk. When I talk about risk I am referring to the risk to your principal – or in other words “losing the money you invested”.
I am not a big fan of taking on too much risk with qualified monies. Many “inside-the-box” financial advisors will disagree with me on this. You need to decide which investment strategy works best for your situation.
You have basically two investment choices – safe money investments and risk style investments.
A safe money investment has lower upside potential. Which means your earnings may be limited, however they have no or very limited downside risk. Which means you should not lose the original money you invested.
A risk style investment may have better upside potential. Which means you might have greater earnings. However they also have a greater downside risk. Which means you can lose all or part of the original money you invested.
Can’t you share at least one “rock hard” investment idea?
Yeah sure I can. And, it is not investment advice. I do not know your specific situation and cannot give you specific investment advice.
What I like for these days are: physical precious metals.
I am not a big fan of paper metals.
Any portfolio should generally have 5% to 10% hard assets in it. Precious metals are classified as a hard asset. Whether you prefer gold, silver, platinum or palladium, the choice is yours.
I like them so much that I could consider even having a larger percentage of them. Again, I am not recommending anything to you, each person’s situation is different and I do not know yours.
Do precious metals go up and down in value? Absolutely they can and they do. However since Roman days they have always had a value.
Again probably most “inside-the-box” financial advisors would disagree with me. Oh well, too bad, I am not changing my opinion.
It’s your journey…..why not enjoy it?
It’s absolutely important to save for retirement and rainy days – but you have to live. Life and time goes by quickly and if you scrimp and save like you’re going to live forever you might miss out on enjoying it. The sobering truth is that none of us knows how long we are going to be here.
I am not suggesting that you spend all of your money to have all the latest toys. Nor am I saying that you should never consider treating yourself.
What I am suggesting is that you use common sense and find balance. You have got to live for today but still save for tomorrow.
In my opinion the best way to consider saving for retirement is simple – do the best you can. Don’t drive yourself crazy over the issue, but take some steps to provide for your “golden years”. The alternatives may be government sponsored assistance which may not be ideal for you.